COMMONWEALTH ECONOMIC CONFERENCE

HC Deb 04 February 1954 vol 523 cc576-695

4.15 p.m.

The Chancellor of the Exchequer (Mr. R. A. Butler)

I should like, first of all, on behalf of Her Majesty's Government, to say how much we welcome the opportunity of this debate. I know of no general panorama or subject on which constructive criticism, from whichever side of the House it comes, will be more valuable, and I therefore hope that hon. Members who have various points of view and different feelings about these matters will make their contributions. I under-take that their contributions will be studied with a view to carrying forward the progress which we have made together in the Commonwealth and sterling area in the past two years

On behalf of the Government, I should like to extend the thanks of our own delegation to the Australian Government for their hospitality at Sydney, to the Prime Minister of Australia for taking the chair with such wisdom, to the secretariat provided by the Australians—which was in every way as efficient as is our own in this country—and to the many people who took part in the success of the Conference.

Having asked hon. Members to make their contributions, I will endeavour to sum up for the benefit of the House some of the matters which we discussed. I promise the right hon. Member for Leeds, South (Mr. Gaitskell) that I will read out no communiqué. In fact, I shall be somewhat extempore. I hope he will do the same, because on reading an article of his in "The New Commonwealth,"to which I will refer, I found a strange affinity of language between that article and the communiqué which we issued after the Commonwealth Conference. Of course, it is impossible with accuracy to state these somewhat difficult subjects in the prose of Milton or the verse of Shakespeare. I may say, without betraying any secrets, that one or two of those present, including the Prime Minister of Australia and the Indian Finance Minister, two great students of English, did their best to improve the language of the communiqué.

The Sydney Conference dealt with some subjects of very great importance to us all. The first was world trade, with which I propose to deal, including the outlook in America; the second was the outlook for the balance of payments; the third was the development of Commonwealth resources; and the fourth was the general long-term policy on which we are setting out together and which involves all these fascinating questions of the freeing of trade and the use of preferences.

I hope to deal with these matters, but first I must point out that the Conference did not meet in an atmosphere of crisis. That is perhaps why some right hon. and hon. Members were almost disappointed that our results were not more sensational. The fact is that we have been successful, and success very often speaks for itself without sensation. It is particularly valuable in these financial and economic matters to be able to report a normal interchange, an absolute unity and complete agreement on all matters. That may be dull but it is at least valuable to the working people and others in all our countries.

Let me take three tests, quite shortly, ofwhat our success has been, particularly over the past year—first, the state of the reserves; secondly, the position of sterling; and thirdly, the very definite efforts made by the countries concerned to fortify and improve their own internal position. Taking the reserves as the first point, the sterling area deficit in 1951–52 amounted to £1,000 million. Its surplus by mid-1952–53 was over £400 million. It is not a bad achievement to turn a deficit of £1,000 million into a surplus of over £400 million.

Further, if we look at the level of reserves at mid-June, 1952, shortly after my first Budget, we find that they stood at £600 million. We find that they rose steadily thereafter—on 31st December,1952, £659 million; on 30th June, 1953, £845 million; on 31st December, 1953, £899 million; and now, at the end of January, 1954, £908 million. That also may be a little dull but it is extremely successful. It is on that sort of basis that the future prosperity, not only of this island but of the Commonwealth, depends. I will say at once that this is not a high enough level for our reserves for the sterling area. We must go on. It is not even as high as the level in the middle of 1951. We still have a great deal to do, but I think this is a notable advance and we must somehow strive to maintain it.

The second test of success comes in examining the position of sterling throughout 1953, and this, I think, is quite a definite achievement on behalf of the sterling area. The spot pound-dollar rate stood above parity the whole time; and not only did our sterling stand high in the markets of the world, but others are now wanting to buy sterling for gold or dollars. The position this Government found when they came to power was that sterling was definitely weaker than the dollar, but that cannot now be said, looking at it from the point of view of world demand. That is a further mark of confidence in our policy.

Further—and this, I think, is a very remarkable improvement for us all—the black market rate, as it is called, which was standing at a level very much below the ordinary spot rate for sterling, has moved up and recently, for the first time since the last world war, has come within the range of dollars 2.73/2.82, and at times has moved right up to the ordinary rate for sterling. This shows that our currency is not in such danger of being undermined, in that the black market rate is not so far apart from the ordinary rate as it was when we assumed power and adopted our policies. These points are naturally, therefore, the cause of some satisfaction to the sterling area as a whole.

A third point of satisfaction was the manner in which the countries concerned had tackled their internal policies, and I am sure the House will be at one with me if I pay one or two quick compliments to one or two countries and their Finance Ministers. Take the position of Pakistan, which has had an absolute crisis in its food supplies and has had very great difficulty with its balance of payments. It lost no less than 40 per cent. of its external income. Any country doing that is in a difficult way. Despite that, Mr. Mohammed Ali, the Finance Minister, and the Government of Pakistan have now brought their country back to within a measurable reach of solvency and happiness again, while they have restored the food position or are beginning to restore it completely. They have done this by the most severe import restrictions which are cutting down on their own as much as on other people's trade.

I want to draw a moral from this business of countries within the Commonwealth putting on import restrictions. We have had it before in the case of Australia, but now the position is very much easier, and I hope it will get easier still. I want to make it quite clear that every one of those countries, by their internal policies, affects the reserves and the future of the sterling area. The people walking about the streets of this city or the streets of Leeds or the streets of Manchester or the citizens of Scotland are as much affected by a collapse in the internal affairs of one of the members of the area as they would be by mismanagement here. Therefore, we should pay tribute when strict remedies are taken successfully by any Government.

In the case of India, I think the most remarkable feature that I noticed, apart from their growing armed and cultural strength, which I was able to witness in a most impressive manner on Republic Day, was their five-year plan, of which I was able to see something. I was able to discuss the matter with their excellent Finance Minister, Mr. Chintaman Deshmukh, and I thought that a most remarkable factor about India's economy was that she has cured inflation. Moreover, she is actually not utilising her usable, available sterling balances even for the purposes of development. If she needs reserves for development purposes, I do not anticipate that she will have to go necessarily to the markets, for she has these reserves there. There again is another country which has taken most strict measures.

I do not want to go through all the countries because I might cause a little jealousy between one and another. But I can sum them up by saying that Australia and New Zealand have been able to restore the position of their internal economy. In the case of Australia, it must be remembered that it has had seven to eight good years without a drought, and this has maintained not only the price but also the quality of wool. In the sterling area we have got to watch not only the internal finances of these countries. We have also got to watch the climate, the monsoons, and the effect that they may have on the economy.

In the case of Australia, its rapid recovery means that they are developing vast resources of uranium and have found oil in Western Australia. Therefore, I think the remark that I made when leaving that very great and independent country still holds, that we are now looking at Australia unlimited, a country of unlimited strength and unlimited possibilities in the future.

The position in South Africa has been fortified by a very strong budget, and I should like to pay tribute to the arrangements under which we were able to earn from South Africa this last year a record amount of gold, which has been of very great value to our gold and dollar reserves. The new Finance Minister of the Central African Federation was able to attend our meetings. He had only been appointed a week, but I can assure the House that he complained very much more about the language we used in our discussions than did hon. and right hon. Gentlemen opposite. He is a good Scot who has taken quickly to this position of Finance Minister, and he talked more commonsense than anybody else.

The position inCeylon has been considerably fortified by the actions of her new Government, but, as the House will remember, Ceylon has been affected by the price of rubber and rice. We looked into the question of the future development programme of Ceylon with a view to helping with the rice situation. Fortunately, the rice position in the other countries of Asia is much better, and I trust we shall be able to do something to help the position in Ceylon.

No view of the sterling area would be complete without some mention of the very great contribution made by the Colonial Dependencies to our balance of payments. When we think of it, it is a staggering sum that they contribute. We are doing our best through Colonial Development and Welfare Funds and other sources to develop the resources of the Colonies. This debate does not hinge on other constitutional matters that have been debated, but it is the intention of the Administrations of the sterling area as a whole to see that the Colonies are developed in the way that is in the interests of their own people and in the interests of the general health and well-being of the area to which they belong.

On this occasion I will not say a great deal about the United Kingdom's internal economy, because I do not doubt we shall have further opportunities of debating that in detail. But I will say this, that the manner in which we have been able to have expansion without returning to the acute dangers of inflation; the way we have been able to reach a record production in the history of these islands; and the manner in which we have been able to maintain full employment while at the same time freeing markets and opening up our sources of supply, has been a source of strength, not only to our people and their standard of living, but,as has been recognised, a source of strength to the sterling area as a whole.

I would say to hon. and right hon. Gentlemen opposite that, when they criticise our economic policy, I think they underestimate the social purpose which has lain behind it. They underestimate the manner in which we have attempted to maintain full employment, to buy where we can cheaply the best food and raw materials we so much need for our people. That is the general purpose which has lain behind the success of the last two years. However, I shall have opportunities of talking about that on other occasions. Just now the only point I wish to make is that our economy is infinitely more flexible and infinitely stronger. While there are many things to be put right, especially our overseas export earnings, which are vital to our future and that of the sterling area, we have got to remember that we have made considerable strides in the course of the last two years.

We decided that this outlook of sombre confidence, as seen by the FinanceMinisters, depended upon two main things. One is the assessment which is made of the future of the world economy and the question of a recession or a down-turn in the economy of another country; and the availability of credit in the event of a recession and such international matters. The other factor on which our confidence depends is the way in which this country and the sterling area are ready to make fresh and renewed efforts to improve and build on the position of comparative safety which we have nowreached.

Let me examine the question of world trade. The hon. Member opposite who asked a Question on this subject the other day will be interested. When we look at world trade we think naturally of the preponderance of the United States economy. We in Sydney had the opportunity of the latest facts, so far as we could get them, on the subject of the United States position. But since then, that judgment which we made after very close analysis, with the aid of the Canadian Finance Minister whose contribution was of the maximum importance to the other members of the sterling area, has been confirmed by the Economic Report of the President of which I must have in my hand one of the first copies available in this country.

This is a most impressive document which gives a clear picture of the performance of the American economy in the last year. It also sets out the various measures which are proposed by the Economic Advisers to deal with the possibilities of down-turn or, the view they rather prefer, the possibilities of growth and expansion in the economy. It confirms absolutely the judgment that we made at Sydney. The Report of the President's Economic Advisers says that America:

…must not only join with other nations but should be prepared to lead them in solving the problems of international trade and currency. That is in tune with the President's own remarks and the trend of the Randall Commission's Report. The Economic Report recognises that, prior to the end of the year, there was some down-turn in American activity, and this has probably been one of the factors which has caused our exports to the United States to be 10 per cent. less in the fourth quarter of last year than they were in the third. I hope that the House will notice this point, because we are trying to make an assessment this afternoon of exactly how difficult or how possible conditions will be in the coming year.

I should like to add to that point that the index of production in the United States fell to 128 in December. It was 130 in November and 137 in July last. The conclusion I want the House to draw from these figures—both as to the effect on our exports and the decrease in the index—is that in fact this so-called recession, down-turn, or whatever one calls it, has already started, and that we are already beginning to pass through it.

If there is any doubt about that assessment, I should like to quote the concluding words of this Economic Report which is signed by the President and which was presented to Congress. The concluding words say: The minor readjustment"— which they call this— under way since mid-1953 is likely soon to come to a close, especially if the recommendations of the Administration are adopted. These recommendations, like the analysis of the current situation on which they are based, envision a sustained improvement in American living standards and a broadly expanding economy. The Report concludes by saying that there is every reason for confidence that their system of individual enterprise, one of the wonders of the world, will continue to be a producer of ever-increasing wealth and widely diffused well-being.

The point I wish the House to note is that the minor readjustment, in the view of the Economic Advisers, has already started and is likely soon to come to a close. Let us hope that that may be so. If it be so, it is, I think, extremely satisfactory, both from the point of view of the sterling area and the United Kingdom, that we should have held the position of the reserves, that indeed we should have increased the reserves, despite the payment of the American and Canadian debts at the end of the year which amount to a very substantial sum.

I think that this gives every cause for confidence that, compared with 1949, the Governments concerned, not only in this country but elsewhere, are doing their best to hold the situation. But the Report very rightly says that the holding of this situation—and I want hon. Gentlemen opposite to note that I only say that I hope this tobe correct—depends upon what action is taken by the various Governments. In the Report it is stated that the American Government intend to adopt certain policies towards house building, agriculture and the social security system and towards the planning of public works. This confirms what we said at Sydney—that we cannot lay down exactly how to deal with a recession before it comes but we have to be ready with preventive action; that we must avoid what they call taking up general or doctrinaire positions without seeing what is really going to happen; that we must pursue an expansionist policy, a policy which this Government believes in; and that we must be ready to act vigorously in case of need. When they go on to mention the various credit controls, the methods of debt management administered by the Federal Reserve and the Treasury, the House will see that the Report, which I think is a most responsible one, gives some indication that the American Government—whether this down-turnis on the way to improvement or not—are ready to take the necessary action to deal with it. Therefore, I think that there is ground for the attitude of sober confidence adopted by the Finance Ministers, and I think that the House can feel satisfied that we are at any rate handling the matter—I say "we" in the sense of all those responsible in the various countries—with rather more success than previous recessions of this kind have been handled.

Now we want to look at the problem of Europe. I want to warn the House of the position as I see it in Europe and in the O.E.E.C. If we take the European Payments Union by itself in isolation, we must realise that we have not yet repaid by our ordinary transactions the credit we have received fromthe Union. When the present Government came into office, we inherited a debt with Europe. Now we are keeping roughly level in our transactions, but I consider that we are very likely to increase our debt with Europe during 1954. We may well at some time have to move into a higher gold tranche.

The House must remember that I am not talking only of the United Kingdom. If I were talking only of the United Kingdom I think that I could present a rather different picture, but I am talking for the sterling area as a whole. The reason I make this remark, which I do not think is at all one which need cast us into particular gloom or difficulty, is that the relaxations of the imports of the rest of the sterling area—that vast area of world trade—have helped our exports to the sterling area but have also resulted in higher imports from Europe too. The result of that generally, from the point of view of the sterling area, combined with our deliberate policy of liberalisation of trade with Europe, will mean that we shall not have quite so good an outlook in that sector. But, taken in conjunction with the other sectors of the world where our trade is being transacted, I think that it falls into the picture quite normally.

I do not propose to recommend either to the Government or to this House that we should cure this matter by restrictions. I am convinced that if we were to go back on our liberalisation policy with Europe and return to restriction, the retaliation on our exports would be far worse than what we have to envisage now. I am convinced therefore that we have been right to liberalise and that we should now try to increase our exports, and the exports of the sterling area as a whole, to the whole non-dollar world, and that includes Europe.

I have tried to give as frank an appreciation of the outlook in America and the outlook in Europe as I can, because we are at the beginning of an important year. It is a year in which we shall have difficulties, but I am convinced that we shall surmount those difficulties. I sum up the position of the outlook for the sterling area in this way. We cannot expect the sterling area necessarily to earn a surplus of the same level as it did in 1952–53 when it was £400 million. This surplus was partly dependent upon the imposition of drastic import restrictions which it would be in nobody's interest to continue a moment longer than is necessary. But we do aim at—and given reasonably favourable conditions we may expect—the continuance of a surplus in the overseas accounts of the sterling area.

Relatively, of course, we expect a considerably more robust surplus for the United Kingdom, but that comes, again, from the well-known economic fact that when the terms of trade have been running as they have been running, the United Kingdom profits more than the sterling area, because those very commodities which go down in price and therefore reduce the earnings of the Commonwealth, naturally make our imports easier and improve the position for the UnitedKingdom. That is why the Commonwealth has never yet, to my eyes or ears, produced a united and agreed commodity policy; the countries which export basic commodities like to see their prices high, but the United Kingdom likes raw material prices to go downa bit in the interests of production for export.

It was recognised in Sydney that the sterling area must not look for its big surplus from the emergency of a raw materials boom, as after the outbreak of the Korean war. Sooner or later, such conditionscause dislocation, or, as in the case of Australia, almost disaster. Equally, we do not propose to try to get a big surplus by import restrictions. We propose to go ahead on the theme of expanding and developing, and particularly expanding and developingtrade within the sterling area, and trade between the sterling area and the rest of the world. In this connection, the United Kingdom can, I think, take a legitimate pride in the fact that some 60 per cent. of the earnings of the sterling area are due to our efforts, visible and invisible, and including oil.

This shows the pivotal role whichwe occupy, and I think it tends to create some ideas which the House used to have in the old days, that our strength comes from the great raw materials, rubber, tin, wool, and so forth. In fact, the main strengths of the sterling area today are the manufacturing industries of this country—the engineering industries—and their exports. That is why it is so important in any plan of Commonwealth development tosee that we are fairly treated at home just as we try to treat others fairly overseas. That is important for our standard of living and for the future of our work people in this country.

Mr. Hugh Gaitskell (Leeds, South)

I gather that the right hon. Gentleman was speaking of the gross earnings of the United Kingdom?

Mr. Butler

Yes. I thought that the House might be interested, having mentioned the efforts made by the United Kingdom during the past year, to see a report of some of the new exports that we have recently been successful in achieving. The two most striking examples are, first, aircraft, where the pre-war exports were something under £6 million, and where in the last three years exports have risen remarkably to a figure of just under £70 million; and, second, refined petroleum products, which now, partly as a result of our new refineries, are running at about £70 million a year. Both those exports, which I think we should mention, are signs that our inventiveness, skill and energy are as good as ever.

But I would like to take one or two others which give remarkable figures and which show that there is life in the old lion yet. Agricultural tractors, for example, yielded £40 million in exports; pre-fabricated houses£4 million—but about £7 million in 1952; combine harvesters and threshers some £3.5 million; while nylon stockings and nylon yarn brought in £6 million between them, and the new drugs, the antibiotics, and so forth, brought in another £6 million.

These are examples—including the fact that our figures for exports generally have recently improved—which give some indication that we are forging and striding ahead. But we have got to do very much more. While we have found new sources of exports by our inventiveness, we have to find something more. Fifty per cent. of the earnings of the rest of the sterling area from the outside world come in aggregate from the big things like wool, rubber, tin, tea and cocoa. But there is another great and diverse range making up 50 per cent., especially coffee, asbestos, lead, and that sort of thing.

Some of the products of the new African Federation, which could be really fabulous, we can export and thus improve notonly the balance of the sterling area, but the world as a whole. We agree that we must keep closely in touch on this question of improving our export trade. The hon. Member opposite asked a question today about better consultations within the Commonwealth. Actually, our consultation methods are about as close now as they have ever been. It is possible to have a consultation literally over night through our arrangements which do not involve the constitution of a particular office as such, but mean a directcontact through our machine and through the experts who have all got to know each other at the official conferences and elsewere. Commonwealth leaders do not want this consultation to be constitutionalised. They want it to exist as it exists in an ordinary family, and it is in that way that we propose to maintain contact, especially on this question of exports.

The right hon. Member for Leeds, South asked in his article in the "New Commonwealth" about dollar imports. I thought it would be wrong if I did not attempt to deal with some of the perfectly legitimate points raised in this article. On the question of dollar purchases, there might have been a natural tendency on the part of anybody who was involved in these matters two or three years ago to say that we should have restricted dollar purchases rigorously.

But I want to say this about dollar purchases from the sterling area—and. I can answer chiefly for the United Kingdom—that we have removed discrimination in this realm of purchase only on basic foodstuffs and raw materials. This was the general view of the rest of the sterling area. In fact, most of the Finance Ministers assured me that their dollar purchases were personally supervised by themselves. I want to make it quite clear that it is the policy of Her Majesty's Government that it is crucial to our competitive power, that in the case of foodstuffs and raw materials, if we can buy cheaper in this market, then we should do so in the interest of the standard of living of our people and of the raw materials we need.

That is the general answer to the right hon. Gentleman. He also raised the question of stocks. We have not regained prosperity at the expense of stocks. This is a matter which is often raised in debate, so I will answer itnow. Last year, stocks increased in quantity in this country over 1952, that is, stocks of imported commodities, and we are not, therefore, trying to do some kind of confidence trick by increasing our prosperity at the expense of stocks.

I come now to a very important point raised by the hon. Member for Morecambe and Lonsdale (Sir I. Fraser) when I made my short statement in the House on the Sydney Conference. He asked whether it was the case that the Sydney Conference had resulted in a reduction of Commonwealth trade. I thought that was a very interesting question as it shows that he—and some hon. Members also—think that because we have widened out the conception of Commonwealth trade with the world, we are not concentrating so much on trading within the Commonwealth.

I also think that some hon. Members believe that, owing to these currency restrictions on trade, there is a deliberate attempt to cut down Commonwealth trade. Those emergency restrictions were imposed entirely for balance of payments reasons, and they have mostly been abandoned except in the case of Pakistan. Naturally we discussed those matters, and I have hopes that there may be developments and that further arrangements may take place as the balance of payments difficulties decrease.

Arising from the Sydney Conference, it is important to realise that it was not the restriction of Commonwealth trade that we were aiming at but at its expansion, and we were aiming to increase its volume by widening the area over which we all trade. That is the very opposite of restriction and confinement.

That leads me to say a word about Imperial Preference. Of course, this matter has been discussed at the last two conferences. The first point I want to make about this is that it is the UnitedKingdom which, through all this difficult period, has kept an open door for all imports from the sterling area. We have done it continuously and, as far as I am concerned, that remains our policy. This indicates that from our point of view we are in favour of granting every opportunity to the Commonwealth to trade with us.

When we approached the question of Imperial Preferences this Government hoped from the start that there might be an opportunity of getting the abrogation of the "no new preference" rule in G.A.T.T.—heaven knows why it should be a great evil to conduct preferences with one's own family. When we came to consider this with the other nations concerned and with the Commonwealth, we found that they were not so keen on this development aswe were, but it still remains our policy that we believe in preferences and would like to use them wherever possible. It also remains our policy to keep the open door as we have done consistently. I have said that when we came to discuss this with the other nations, we had little success, but the President of the Board of Trade had a minor success in being able to increase the tariff on certain products after his last visit to Geneva.

What is the view of the Commonwealth on this matter? The view of the Commonwealth as a whole—and I think I can mention this for each individual country—is that it wishes to see the existing preferences retained. Therefore, a great deal of nonsense is talked about the preferential system being abandoned. Thatis not true. The Commonwealth wishes to see existing preferences retained. For instance, no one is keener than South Africa to have her preferences on her wines and fruits. No one is keener than Australia to have her existing preferences retained.

There is a fear in the minds of some of the new Commonwealth countries that the words "Imperial Preference"are by their nature not suitable for the modern age in which we live, and there are political difficulties surrounding the problem of extended preferences in some countries. In others they are anxious whether preferences will be given to them by the rest of the Commonwealth if they grant preferences to the United Kingdom.

So the long and short of this matter is that the Commonwealth is looking to other methods, which I shall be describing shortly, of expanding its trade while maintaining the present preference system. It is most important for the House to understand the modern, independent Commonwealth as we find it and as it really is. In this connection hon. Members on either side of the House would make a great mistake if they did not realise that Australia intends to build up and maintain certain secondary industries.

After an intimate discussion of these matters, not only with the Ministers, but also in each country—because I stopped in Pakistan and in India, I went to Calcutta as well as Delhi, I stopped some time in Malaya and visited various parts of Australia—I came to the following conclusion. In all those parts where our exports are affected by competition and where it is vital for us to do better, it is true to say that, despite the establishment of secondary industries, if the volume of opportunity and the volume of trade increases, then the volume of trade and opportunity increases for the United Kingdom.

I further found, which is comforting, that although we have had difficulties over delivery dates, and although we have had difficulties over follow-up, we can compete in our engineering industries and we are competing. We are having trouble with Germany because the German order books are not filled and they are not like ours. For the time being we shall have trouble, but if we follow up this plan of the development of the resources of the Commonwealth and then tender competitively, as I believe we can, we shall maintain the standard of our exports, and the greater the volume of trade and development the greater chance we shall have.

There is a view that the Commonwealth might, perhaps with Europe, form a closed and self-contained ring. Let us face up to that. The sterling Commonwealth is not self-sufficient. It must import wheat, iron ore, timber, wood pulp, cotton, tobacco, coarse grains, meat and aluminium. If we look at the whole Commonwealth, that is, taking in Canada, I do notbelieve that it is self-sufficient either, because we should need to import meat, cotton, coarse grains and tobacco, to take only a few examples.

I mention these things because they are matters which are of great interest to hon. Members and they ought to be brought out into the open and discussed in a dispassionate way in order to find the best policy for each country. If that be the case, what is the best line for our country and for the sterling area? I am convinced that the best line is the one we adopted a year ago in the London Conference and which we have confirmed now, namely, the collective approach of the Commonwealth, together with the countries of the E.P.U. and Europe, towards a freer trade and payments system.

This means that we inevitably linkup the economies and the finances of the free world on the other side of the Atlantic, and in the Pacific, and on this side in Europe, as we are linked already in foreign policy, and vitally linked in defence. I think the great weakness of the free world at the moment is that we have not made enough progress together in the solid basis of our economic and financial policies.

That is what we are aiming at. I do not want some hon. Members who remain as keen as I am on the preferential idea, and who believe, as I do passionately, in the strength and unity of the Commonwealth, to think that we are edging out into some purely idealist world where we shall throw away all discrimination before we are ready, and build up a system which is not safe for our people and our country; any more than some hon. and right hon. Gentlemen opposite imagine that we have thrown the reins on the horse's neck in the internal economy and are going mad on some sort of dogma. It simply is not true. We watch things just as carefully as right hon. Gentlemen opposite did in their time, and we watch them a great deal better because we are successful and they led us into bankruptcy.

The position, as I see it, is that we shall remain absolutely cool, calm and collected in this matter. As a leading article in the "Economist"says, which I read under one of those delightful captions that are produced every week, if we cannot get one world immediately—which is, after all, a great ideal—we may have to work for one and a half worlds. We have to work towards the collective approach in order to get a degree of freer trade with the United States. We hope to get the convertibility of sterling, which finances half the trade of the world, when we can fulfil the conditions; but we must at the same time perform what is the vital function, and that is to build up our own strength and the strength of our Commonwealth.

Therefore, it is on these lines that I conclude. What chance is there of achieving this freer trade and payments system, and what outlook is there for building up our strength? Considerable progress has been made towards this freer trade and payments system. We laid down three conditions, as the right hon. Gentleman will remember—sounder internal policies, co-operation from creditor countries, such as the United States, and adequate support for the reserves.

In each one of those departments considerable progress has been made in the last year. In the United States the outlook is more hopeful after the Douglas Report and the Randall Report, and the definite message of President Eisenhower to Congress indicating the direction in which American policy is moving.

So that is a more hopeful outlook. But this, just the same as my prognosis for the balance of payments, depends upon the action which is taken. If action of that kind recommended in the Randall Report is taken, then we may well say that in the not too distant future we can move further along these lines. But I remind the House that these freer policies have a great reward. If our currency returns to convertibility it will be stronger, and all this will redound to the advantage of the City of London and bring more credit to our trade and payments.

I conclude with a few words about what, I think, is the modern conception of bringing the Empire closer together. It is the great opportunity we have for developing our resources. If hon. Members had had the chance that I had of seeing the massive character of these resources, the new developments in Central Africa, in India, in Australia, in New Zealand with its timber supplies, and in Ceylon, they would be astonished that in the past we have not done more to develop our own strength in this way. The responsibility now is on all hon. Members.

I said deliberately when I landed in Sydney that we had to take an audacious attitude towards this question of the development of our resources, and I am sure that that is right. Last year we made available, or authorised, some £120 million sterling from a variety of sources in the City of London for these purposes. I am convinced that it will pay us if we go on providing for projects which improve the balance of payments and in some cases meet the social needs of the backward people. It is, so to speak, throwing good money after good, because this is the way to increase our export trade. When I discussed these things in the countries concerned the people there said, "If you can help us a little bit, in addition to our own efforts, in financing these developments then your engineering exports will get the opportunity which they so much need."

This, therefore, is the modern, imaginative policy which we have to pursue. It will mean quite an effort and quite a strain for this old country. We gave a considerable lead in Sydney. I think that the Australians and the other people concerned were able to see the vitality of our economy and the extent to which this Government and this country intends to give a lead to the Commonwealth in this matter of development. This means that we shall have to increase our earnings and keep our production up. We shall have to make this a great national effort, all of us being brought together, and we shall have to realise that only in this way can we maintain our lead. What is much more important even than this for our own people, is that only along the path of expansion and development can this Island of 50 million people, which can only feed 30 million normally, keep our standard of living and our employment.

That is why this Conference, although it may have had a quiet ending which may have distressed the right hon. Member for Leeds, South and other learned scribes, in fact had a considerable success in the field of moving towards a system of freer trade, a system of expansion, a system of closer unity and co-operation between us all, and, above all, a determination so to develop our resources that our unity becomes not only constitutionally the most interesting but economically the most powerful that the world has ever seen.

5.5 p.m.

Mr. Hugh Gaitskell (Leeds, South)

The Chancellor of the Exchequer was clearly at pains, especially at the beginning of his speech, to avoid any allegations from the House that he was dealing once more in clichés and, for a good part of his speech at least, he gave us a kind of "View of the Commonwealth and its economic problems without tears." If there were clichés for some of us, at least some of the things which he said were desirable from the point of view of teaching hon. Members opposite about the facts of life. But I felt that just at the end the Chancellor was back again in his old form. He could not resist those inspiring sentiments. I sympathise with him. It is difficult for any Chancellor of the Exchequer not to end a speech with inspiring sentiments, but I hope that some day the right hon. Gentleman will try not only to end his speech but to see it through without talking about unity, stability, flexibility, and all the other "itys."

Mr. R. A. Butler

Those are all nouns, or virtues, to which the right hon. Gentleman and his friends attach little importance.

Mr. Gaitskell

We attach importance to things which have very precise and definite meaning and not to vague phrases which are extremely difficult to understand precisely.

Sir Robert Boothby (Aberdeenshire, East)

May I point out that I have been listening to these remarks from successive Chancellors for 30 years and that they were used by no one more than by the late Sir Stafford Cripps? They are written, as of course we all know, in the Treasury.

Mr. Gaitskell

I had already conceded that it was difficult for any Chancellor. I was merely exhorting the right hon. Gentleman to try to keep them out. But Sir Stafford Cripps gave us a great many facts as well, which the right hon. Gentleman, somehow or other, seems to leave out.

As I shall have some critical things to say about the Sydney Conference and questions to ask, and anxieties to express, I should like to make it plain from the start that we attach the utmost importance to these conferences. They are not only valuable, they are essential to the proper working of the sterling area and for the benefit of the economy of the Commonwealth as a whole.

But there are some things about this Conference that trouble us a good deal. I should like to begin with something that may seem to the Chancellor of comparatively little importance. It is the publicity which the Conference attracted and the Press statements that were made from day to day. After all, that is the only way in which we can know what is happening—that and the Communiqué and such statements as the right hon. Gentleman and other Ministers make. Before the end of the Conference the "Financial Times" said: The Sydney Conference has provided something of a record in the production of garbled reports. If the final Communiqué runs true to form it is not likely to clear up the confusion very much. I think that one may say about this Conference, as compared with the previous Conference, that a great many different reports seem to have got out to the Press. Whereas on the previous occasion the difficulty was to find what had actually happened—at least we did track down to earth the convertibility plans—this time it is very difficult to find out anything precise at all emerging from the Conference.

The "Economist," in the article which the Chancellor quoted described the Communiqué as A jumble of careful contradictions, in eight pages of double talk and bad grammar. But the contradictions and the double-talk, if not the bad grammar, had begun, of course, long before the publication of the Communiqué. Indeed, they began as the Ministers began to arrive in Australia; and while they were on their way there they joined in this business of expressing contradictory opinions. I was surprised that the Chancellor felt able to assure us of the absolute unity and sense of common purpose of all Members of the Commonwealth. He painted a kind of monolithic picture of the situation, which is strangely at odds with what one read in the newspapers.

For example, at the very beginning—I think on the day before the Conference began—the Canadian Finance Minister and the New Zealand Associate Finance Minister expressed diametrically opposite views on Imperial Preference. Mr. Abbot, the Canadian Finance Minister, said of Imperial Preferences, We feel that they did good work for many years, but it is now time to lift them, together with other barriers on exchange, currency, and trade. As a trading nation with a dollar currency we find that Imperial Preference works in reverse for Canada. Mr. Bowden, the New Zealand Minister, said on the same day that he was an enthusiastic supporter of Imperial Preference and would like to see it deepened and strengthened.

Mr. Menzies, as we know, has always been very enthusiastic and interested in convertibility and gave us a great deal of information about it last year. But the Ceylon Finance Minister, our friend Sir Oliver Goonetilleke, to whose period as High Commissioner we all look back with pleasure and whom we liked very much, took a rather different view. Soon after he arrived in Sydney he said: We are constantly worshipping at the shrine of the false goddess of multilateral trade, and that does not bring homes or jobs to our people.

Sir R. Boothby

Hear, hear.

Mr. Gaitskell

He has at least one supporter in the hon. Member for Aberdeenshire, East (Sir R. Boothby). One might have hoped that the Chancellor himself would have been able to pour oil on the troubled waters, but that was not so. He was involved almost at once in controversy with the deputy leader of the Australian Labour Party. He announced at Darwin that the Commonwealth had tremendous resources in uranium and oil which have to be developed in the interests of the whole rather than of any single nation. Britain was hugely interested in Australia's uranium deposits and they would all have to be used for the benefit of the British Commonwealth. If I may say so, that was not up to his usual standard of tact and diplomacy, and it was not altogether surprising that Mr. Calwell very shortly afterwards—I think it was the next day—said about this statement that if any of Australia's uranium was sold it should be at the highest prices, and added: Australia should not allow herself to be blackmailed into selling at bargain prices with the argument that while we have uranium some other countries have scientists with 'know how.' Rather than surrender… I am not expressing any views on this, but saying what the atmosphere of the Conference was— Rather than surrender to the pressure of the British Government, we should attract scientists to work for us. At a later stage, obviously the Chancellor saw that he had not expressed it in quite the right way and put a rather different gloss on this business of uranium. He has referred to that this afternoon.

Mr. R. A. Butler

May I point out that from the start my intention was absolutely clear? On landing at a very early hour in the morning—the right hon. Member has been through this himself and knows that the Press speaks to one at every hour of the day or night—I said that these great resources—entirely Australia's—would be used for Australia and the Commonwealth and the world. This was an absolutely perfect statement. It gave a lot of fun and it was fully realised what I meant.

Mr. Gaitskell

I am delighted that we have had a tactful intervention to say it was quite all right. I said that the Chancellor had a rough journey, but one would have expected him, with his talent for agreeing with an almost infinite number of people with different opinions, to have been able to smooth things out. Perhaps he did so at the Conference. In the beginning, his own line was consolidation. That was to be the keynote of the Conference. At Singapore he said: that the coming year might bring trade difficulties but, if the Commonwealth consolidated firmly, it might emerge from the difficulties and find fresh prizes. The Times" said: Mr. Butler defined the prizes as 'convertibility and things like that'. What I think was even more remarkable was that he went on to define consolidation, which is a very difficult thing to do, by saying that the essential feature of consolidation was to make sure that their internal policies were strong and this meant balanced budgets. Coming from the Chancellor of the Exchequer, who has had the largest overall deficit this country has known for at any rate six years or so, that was a rather remark able statement. I hope that when the time comes, next April, he will live up to it and that in the Budget he will cover all under-the-line expenditure as well as over-the-line expenditure.

A little later at this same Press Conference in Darwin—which gave rise to so much trouble—the right hon. Gentleman said: A great deal has been achieved in the last two years in restoring the position of the sterling area, but now we must consolidate…. The same word again. Economic troubles may arise at any time and we must be prepared to face them. But now we have such terrific wealth I feel we cannot fail if we stay on a straight and narrow path. I thought that a rather curious statement for, generally speaking, the possession of great wealth leads people to suppose that they need not stay on a straight and narrow path. Of course, the usual phrase came the next day when the right hon. Gentleman got to Sydney and settled down after the long voyage: We now have the long haul ahead to prosperity. But finally, feeling that long hauls and consolidation did not really meet the needs of the Australian climate, the right hon. Gentleman appealed to the sterling area to take risks and to be audacious. Risky consolidation is evidently the policy of Her Majesty's Government. I think the Chancellor will agree that when looked at afterwards, some of these sayings appear a trifle odd. I turn, as did the right hon. Gentleman, to the prospect before the sterling area and to the world economic situation. He referred in his speech—and it was mentioned in the Communiqué—to the existence of £400 million surplus in the sterling area in the year 1952–53, as compared with the £1,000 million deficit on the previous year. I ask him in a Question today exactly what that £400 million covered because, in the first place, the surplus in gold and dollars for 1952–53 is not £400 million, but £257 million. The Question was not reached at Question time and the answer is not entirely clear. I presume that the explanation is that we were either repaying debt to other parts of the world, or we were investing outside the sterling area; I think that the change in the Japanese situation is one of the important explanations.

Mr. R. A. Butler

May I hand the answer to the right hon. Member?

Mr. Gaitskell

I have seen the answer, thank you very much, but it does not tell me very much. Perhaps the hon. and learned Gentleman the Under-Secretary of State for Commonwealth Relations will give more details when he replies to the debate.

I think we should be aware of how the £250 million gold and dollar surplus is composed. It is not a true current balance of payments surplus at all. In the first place, it includes defence aid to the extent of £118 million, it includes other capital grants for movements into the sterling area of £45 million and the true current balance between sterling and dollars in 1952–53 was, according to the White Paper, £94 million. Certainly that is not anything which we should play down too much. It is desirable to have a current balance, but I think it extremely important that we should not be misled into supposing that the structural change has been as great as the figuresof £400 million seem to suggest.

Secondly, I think we ought to ask how this is happening. I want now to refer to some interesting figures which the Board of Trade recently published about the terms of trade of the whole sterling area with the rest of the world—that is to say the prices of imports into sterling area countries in relation to the prices of their exports. These figures, published in the Board of Trade Journal, show that in 1951–52—which was the crisis year, the difficult year—the terms of trade of the sterling area deteriorated by no less than 25 per cent. I reckon that that change in the price situation alone must, in round figures, have cost the sterling area about £1,000 million.

Since then, thatis to say in the next year, 1952–53, the terms of trade have improved by about 7 per cent.—the price of imports in relation to the price of exports—and the gain is something of the order of £200 million. I do not know how longthat improvement will continue, but it is obvious from the figures I have mentioned that it is of great importance to the sterling area what happens to dollar prices on the one side and sterling area prices on the other. I do not think we can assume that the movement will necessarily always be in our favour.

The second point I wish to make, and which was referred to by the Chancellor, is that the recovery has been associated with very severe import restrictions. He assures me we are not de-stocking in this country. In the article he mentioned I was not referring so much to the United Kingdom as to other parts of the Commonwealth. Perhaps we could have an answer on the point about whether in 1952–53 the fall in imports in the rest of the sterling areaand the Commonwealth was in any way at the expense of stocks. As the Chancellor has admitted, we cannot hold these import restrictions for very long, and that is presumably one of the main reasons why the prospect for 1953–54 is much less favourable.

A figure was given in the Conference—it leaked out—of £200 million. I presume that again is a figure including defence aid, and capital movement as well possibly. If so we must draw the conclusion that the Conference themselves decided that at present we were, so to speak, barely in balance with a small surplus, but not more than that. I suggest we should keep that in mind when we come to consider convertibility.

I still hold the view that it would be most unwise to embark on convertibility—in any form, one may say, whatever—unless we feel that structurally the balance of payments in the sterling area is in surplus, particularly with the dollar area. As to gold reserves, of course they have risen. But I must point out that the figure of just over £900 million which they have reached, compares with £1,380 million which they had reached in July, 1951. That is to say, they are nearly £500 million below the peak point they reached in the post-war period.

It may be said, "Yes, but the sterling balances are not so high as they were then."That is true, but the sterling balances in relation to the reserves are just about the same level. That means that if there were to be any unbalance in the current account it is only too likely that the sterling balances which exist, and which are still very large, would be converted into dollars, and we should have a serious exchange situation developing.

Mr. R. A. Butler

I think the right hon. Gentleman would agree that sterling balances on the whole are controlled by releasing agreements and in several important cases—as I said about India—they have not yet drawn upon their usable balances. The rest are controlled by particular agreements.

Mr. Gaitskell

With respect to the Chancellor, I would not say that is true of all the sterling area balances.

Mr. Butler

Not all.

Mr. Gaitskell

It is true of the Egyptian balances; I made the agreement myself. But the whole point is that the sterling area balances, by and large, are free balances.

Mr. Butler

Some of them.

Mr. Gaitskell

It is true that the fact that India has not drawn as much as she might have done in the past means, of course, only that the balances have accumulated and may be drawn.

Mr. Butler

I myself signed the release agreement with India just as the right hon. Gentleman contracted one himself.

Mr. Gaitskell

All I can say is that I hope the Chancellor will not expect—I am sure he will not—that any particular agreement made withinthe sterling area, covering the Colonies as well will avoid trouble in the event of the sterling-dollar gap reopening. It is the essence of the sterling area that there is only a gentleman's agreement about not converting sterling into dollars. But if any members of the sterling area get into trouble there is not the slightest doubt that they will be forced to draw on those balances. We have said that repeatedly so far as the colonial balances are concerned. Hon. Members opposite used to criticise us for allowing these balances to accumulate, but they have gone on accumulating, under the present Government. They will, however, be available for the Colonies to draw on if they run into economic difficulties. That cannot be denied.

I wish to pass on to the general dollar problem. One might suppose from the remarkable outflow of gold from the United States in the last 18 months, which has been running at between 2 billion and 3 billion dollars a year, that everything was now moving in an entirely satisfactory manner. But I think again we should be rather cautious. In the first place, of this 2½ billion dollars to 3 billion dollars the sterling area has obtained only a little more than a quarter. The rest has gone to other countries outside the sterling area altogether.

In the second place, as the Randall Commission's Report points out, this movement of gold from the United States is closely bound up with the fact that the United States, apart from military aid, are spending at present—and have been spending in the last year—3 million dollars on offshore purchases, military expenditure abroad and stockpiling, and 2 billion dollars on economic aid. In fact, the Randall Report assumes there is still a true dollar gap of between 2 billion dollars and 3 billion dollars a year.

What is worrying me more is that they themselves recommend that economic aid should be brought to an end as swiftly as possible. They also recommend that any disguised economic aid should be brought to an end—anything which, for instance, comes out in the form of offshore purchases or expenditure, but is really done to help the economies of other countries. That, they say, must stop. We do not know what Congress will do, but I am bound to say that it seems far more likely that they will follow the recommendations of the Randall Commission in this respect, and not follow them in their tariff proposals.

I am not suggesting that if trade is maintained in the United States there is immediate trouble ahead. There are a lot of dollars still in the pipeline. But I am saying that, on the evidence available to us, we cannot say the dollar-sterling or the dollar-rest of the world problem is yet in any way finally solved. I am also going to ask whether in fact the United States economy is going to keep up.

The Chancellor talked about that and I do not want, any more than he did, to go into a lot of statistical detail. He stated what I myself said, that there is a recession now. There is not the slightest doubt about that. Thequestion is how far it will go. But I think we should be making a grave mistake, however much we may hope for it, to expect that counter slump action by the American Government will necessarily cause the tide to turn. There is no doubt that in the UnitedStates there can very quickly be built up an extremely powerful depression psychology, and it is too early to say whether or not that will happen.

It is true, as the Chancellor says, that the Report of the Council of Economic Advisers indicates that they think it is only an inventory recession and will not go further. But we know that, in addition to the fall in production and rise in unemployment, personal incomes have now begun to fall and there are signs of retail turnover also falling. Personally, I think it foolish for anyone to prophesy exactly what will happen. I do not doubt the desire or indeed the intention of the American Government to adopt counter-measures. What I do doubt is whether they and Congress between them will move sufficiently far andsufficiently fast.

How will this affect us? It has not yet greatly affected us, though I was interested in the figure given by the Chancellor of the decline in dollar exports. Perhaps we may be told if there is any information about the future prospects for dollar earnings both for the United Kingdom and the sterling area. The Chancellor has warned us that we shall be in deficit with Europe again, and taking that and the very uncertain outlook in the United States, it is obviously possible that the dollar gap may reopen. That brings one to what we are to do in that event. I was a little disappointed about what the Chancellor had to say. He seemed to be praising President Eisenhower for the detailed statement made in the Report about what the United States Government were going to do. Why cannot we have from Her Majesty's Government some statement about what they are going to do? Surely the example of President Eisenhower in this matter ought to be followed. It is not good enough to do what the Ministers at Sydney did according to the newspapers—"deprecate public discussion of the United States recession." That is a rather silly line to take.

It may be argued—apparently this was one of the things discussed at the Conference—that the gold reserves should be allowed to decline and that we should "live on our fat"for the time being. I gather that the Conference, quite rightly, turned that down.

One is faced with the question of what will be done. It is no use the Chancellor saying that wedo not want to adopt any restrictive policies. There is nothing else that can be done as far as the dollar situation is concerned, in the short run anyhow, if the gap does reopen, except tighten control over dollar imports.

That brings one right up against the question of whether one will tighten up against other imports. I submit to the Chancellor and the House that the essential thing at that point is to discriminate, and frankly to discriminate. This is one of the things about the Chancellor that worries us. He seems to have taken an increasingly hostile attitude towards discrimination against dollar imports, and that might be most dangerous, because it will leave him in the situation that the only way in which he can contract dollar imports will be by means of a general fall in incomes and employment here and the rest of the Commonwealth. That would be disastrous.

The Chancellor made no reference to one matter which I would have supposed the Conference would have discussed—commodity agreements. AtSingapore, on his way out, he said that these were to be discussed and that the possibilities of a rubber buffer stock scheme would be considered, but we have heard nothing further. Very regrettably, the Randall Report recently turned down absolutely flat any United States participation in these agreements. That makes the whole situation much more difficult. I should like to know whether, nevertheless, the subject was discussed at Sydney, and whether the possibility of a Commonwealth scheme with otherproducers and consumers as well was considered. After all, the United States have not officially come into the tin scheme. This is surely one of the obvious counter-measures which could be taken, and it is essentially a Commonwealth measure.

I turn now tothe rather wider issue of encouraging Commonwealth trade. I shall take up again the matter of the Australian wheat surplus, which I raised at Question time the other day. This shows very clearly the kind of problem that we have to face if we descend fromvague generalities down to the real economic problems that arise. We all know that during the Conference itself a rather alarming statement was made by Sir John Teasdale, Chairman of the Australian Wheat Board. He went so far as to say that the position facing the Wheat Board and Australia was the most serious crisis since the depression of the early 1930's.

One is bound to ask if the Conference considered whether the sterling area could absorb the surplus. After all, it is an extraordinary situation to talk about Commonwealth development, and particularly food production in the Commonwealth, and to encourage the Australians along these lines, and then, when they have a surplus, shrug our shoulders, turn our back and say that we are not sure that we can do anything about it. We must have a firmer answer on that point this evening.

One of the spokesmen of the Conference—the gentleman who interviewed the Press—put it very well, saying that: …there was a feeling that while preferential tariffs were limited by the provisions of the General Agreement on Tariffs and Trade, preferential trade of another kind was feasible not by tariff preferences but by commodity agreements, under which members of the Commonwealth would buy more from one another.…For example, while Australia was looking for buyers for sterling wheat, India still bought wheat for dollars because she could buy it thus more cheaply…. I want to know where the Government stand on this matter. It is not enough for the Chancellor to say, as he did, that the Australian wheat is soft wheat and that we need both hard and soft wheat. Does he really intend to say that the proportions in which the different wheats can be varied are absolutely fixed? Of course not. He knowsperfectly well that they can be varied, and have been varied. Is it, then, a matter of the price? According to my information, the price of Australian wheat is below rather than above that of Canadian wheat.

One sees clearly that the difficulty that the Government are in is that they have now lost control of the situation by handing back the import trade in wheat to private firms and by introducing a free commodity market by allowing the wheat dealers to buy wherever they like whenever they like—complete freedom. This has really made it almost impossible for the Government to take urgent and immediate action to deal with the situation. That is a very serious matter.

It does not apply only to wheat. It applies to many other commodities which are of great importance to the Commonwealth. The Finance Minister for Ceylon had a very clear view about it. When he was leaving the Conference, which debated in such harmony and came to such definite, clear and united conclusions about everything, he said: Everyone had accepted the view that to increase its strength the Commonwealth must so far as possible buy from within itself. If there were surplus wheat in some countries of the Commonwealth and others were in the market for wheat, every possible effort would be made in future to purchase supplies within the Commonwealth before going elsewhere. Does the Chancellor agree with that, and if so, what is he going to do about it? How is he going to do anything about it without reversing home policies?

Sir Oliver's final words were touching. He said: The most heartening words he took away had come from Mr. Butler…'Always remember I am your friend, and you can communicate with me even daily.' I do not know what really happened. That looks very much like the end of tremendous row with the two sides making it up. It also looks very much as if Sir Oliver's idea of how the Commonwealth should work was not accepted by the Chancellor or by at any rate some of the other members. It really is not good enough to say, as the Chancellor said when he was asked about this: The United Kingdom had to purchase wheat both from Canada and Australia because it mixed hard and soft wheat, but it would try to pursue the policy proposed. That is not an answer worthy of the British Chancellor of the Exchequer, especially one who believes in planning and is always reiterating that the economy has not gone back to free private enterprise. I hope we shall have an assurance on this point, because it is a really serious matter and illustrates perfectly the difficulty into which we are now getting.

The same thing arises over Imperial Preference. It is clear that what the Government intend to do—I hope hon. Members opposite realise this—is to get rid of import licensing throughout the whole of the sterling area—what we call quantitative controls and restrictions—and to retain Imperial Preference as it is today. Some members of the Commonwealth would like to get rid of it; Canada, for one, would. Others would like to get something more in the way of preferences, so we are left with the broad conclusion that it would be left as it is now.

But, of course, it is a very different matter from what it was before the war. The value of these preferences is far less than it was before the war, wherever they have been expressed in absolute terms; and yet here we have a Tory Government, which for years has been pressing the arguments for Imperial Preference, now going back far more in the direction of free trade and further away from Imperial Preference than we were 20 or 25 years ago. That is a fact which hon. Members opposite may perhaps like to think out, and on which to ask whether it is the policy which they want to see operated by the Government.

Mr. R. A. Butler

May I make it clear that the right hon. Gentleman's conception of Government policy is entirely his own, and entirely erroneous?

Mr. Gaitskell

It is always a necessary part of the process in these debates to guess at what is the Government policy, and to hope that the Government will explain it afterwards. If I have said anything which is not true let him correct me. I have had to assume that this was Government policy. But if it is not, let the right hon. Gentleman say what is. What is wrong? Why do they not tell us? Do they want more preference and more Commonwealth trade? How, then, will they get it without Government authority and intervention?

The truth of the matter is that they have been driven into this position by a combination of over-optimism on the part of the Bank of England and the Treasury as regards convertibility and a doctrinaire opposition to Government buying at home. They are now going to do—but far worse—the same with Commonwealth agriculture as they are already doing withBritish agriculture.

The plain fact is that we cannot get real development in the Commonwealth without long-term guarantees and assurances of some kind. We know that was the case with sugar, and we know that it is the case in many other directions and in the case of many other commodities. If these guarantees are now to be taken off, I do not see that there is any serious prospect of getting that Commonwealth development in which we all believe—not so long as the Government persist in this policy offreedom for imports all over the Commonwealth.

Quite apart from that difficulty about Commonwealth development, there are others—or, to put it in another way—other conditions that have to be observed if we are to get development. I see the present situation something like this. There are still Commonwealth countries keeping fairly tight restrictions on the imports of British goods, restrictions which they imposed in 1952 and which the Chancellor admitted have not yet been wholly removed. Manyof these Commonwealth countries have fairly favourable trade balances, but they also want to have more development.

It seems to me that the obvious course, in these circumstances, is, firstly, as I have already mentioned, for us to give long-term guarantees, and particularly for agricultural production; secondly, the removal of restrictions by other Commonwealth countries to allow more of our goods, and particularly capital equipment, to be sold there; and thirdly, a sufficiently large balance of payments surplus in the United Kingdom to finance the whole of that development.

Has the Conference really carried out any step in this direction? We have had nothing precise about import controls; for example, we do not know whether the Australians are to liftany more restrictions or not. So far as our own contribution is concerned, there seems to have been a considerable muddle at Sydney as to what was said. Rumours got out that the Chancellor had promised this, that and the other, which then had to be hurriedly contradicted. But let us take the figure which the Chancellor gave. He said that in 1953 the British Government had approved an export of capital, including loans and grants to the sterling Commonwealth, of £120 million. That is quite a formidable figure, but it does not tell the whole story.

We have the curious situation today that whereas, if the Australian Government or one of the State Governments or the Government of any other part of the Commonwealth, wish to come here and borrow, they haveto obtain the permission of the British Government, but if British firms want to export capital to any part of the Commonwealth, and want to set up subsidiary enterprises or start some businesses, whether it be mines or milk bars, there is no control whatever. There is nothing to stop them, and there must have been substantially more capital exported to the Commonwealth, I presume, in 1953 than the £120 million, because there is all this private capital which went out at about the same time.

That means that, if this Government continue without any control over the export of capital, we shall have a position in which we shall have to find a very substantial amount of money for these purposes, which would mean a pretty large surplus in our balance of payments. The Chancellor was at pains to emphasise that anything he had promised at Sydney would not involve us in any greater austerity. There was to be no sacrifice here, but everything would be all right. What exactly did he promise? Is there to be an increase in the total amount of investment in the Commonwealth? Is it to be better directed? Is the same amount to be used to better purposes? If so, how is it to be directed? If no more is available and if there is to be no direc- tion, what is the gain to the Commonwealth? If there is to be more, exactly how is this country going to find it?

We have to find about £70 million a year for the repayment of the United States and Canadian dollar loans, with interest payments as well. On last year's figures, we are already, without including private account, up to £200 million. Are we to have a surplus of £200 million, and even if so, are we going to be able to accumulate dollar reserves over and above any increase in the sterling balances? Obviously, not.

The Chancellor some time ago said that we should aim at a surplus of £300 million. I have the impression that he regrets making that statement, and more recently he spoke of it as being rather on the high side. But we must know where we stand. If the Chancellor proposes to go ahead with this Commonwealth investment, without a sufficient trade surplus, then I say that the only effect will be the piling up of short-term debts. We shall be lending long and borrowing short, and we all know how dangerous that can be. I think that it is something that must be watched. We must either control the private export of capital, or, somehow or other, achieve this larger trade surplus which is now imposed upon us.

The trouble about the Chancellor is that he is so anxious to please everybody that he gives a series of contradictory answers. He is in favour of every kind of trade. If he is asked whether he wants more East-West trade, he says, "Certainly."If he is asked whether he wants more dollar exports, he says, "Of course."Does he want more trade with the non-dollar world? Certainly. The Conference spent a whole session on this. And last but not least the hon. Member for Morecambe and Lonsdale (Sir I. Fraser) extracted a series of assurances that he also wants more intra-Commonwealth trade. If we are to have more trade in all directions, what does that amount to? It is just that we want more trade. [An Hon. Member: "Multilateral trade."] Yes, multilateral trade, but in that case we are back where we started, as far as any encouragement of trade in this or that direction is concerned.

I agree with the hon. Member for Aberdeenshire, East (Sir R. Boothby). Despite these bland answers to his hon. Friends and other people, the real trend at the moment is away from Commonwealth development and trade, and that is bound to be the case if the Chancellor carries out his avowed policy of reducing the degree of discrimination, introducing this freedom and getting back to full multilateralism which he seemsto favour.

Of course, we realise the situation inside the Conservative Party at the moment. We know that there is a great deal of discussion going on about who is to succeed the present Prime Minister, and we know that the Foreign Secretary is in trouble over Egypt. I warn the right hon. Gentleman that, if he is not careful, he will be in just as much trouble over Imperial Preference and Commonwealth trade. I am not surprised that, in view of Egypt on the one side and Commonwealth trade on the other, the Prime Minister has decided that he will not retire after all.

But this is more than a contest between two personalities, however admirable they may be. As I said at the beginning, we welcome those Commonwealth Conferences, and we do so all the more because we believe that our economic future is closely bound up with the working of the sterling area. We do not think it would be a good thing to bring the sterling area to an end, although convertibility does mean that.

We cannot feel from what we have heard thatthe best use was made of the time of the Conference. Apart from a general impression of complacency, in no way dispelled by the Chancellor this afternoon, we cannot say that any clear picture emerges about the prospective balance of payments in the sterling area, and it does not seem that any serious attention was paid to the danger of an American slump or to the plans to be made against it. Certainly we have heard nothing of them. Far from any encouragement to increase Commonwealth trade, the Conference has been content to evade the vital issue of purposeful action to achieve this object. It has postponed altogether any discussion of Imperial Preference.

We regret that the United Kingdom Government, instead of taking the lead in developing Commonwealth trade, have, by their anxiety to reintroduce unre- stricted private trade, made this development difficult, if not impossible. The fact is that a successful Commonwealth policy today calls for State intervention and guidance on a scale far greater than hon. Gentlemen who support the Government would contemplate—in purchasing, investment, foreign exchange and import control.

For the time being, I dare say, the combination of dollar aid and favourable terms of trade will obscure the dangerous consequences, but I am afraid that time will show that a great opportunity has been missed, and that, here as elsewhere, to try to apply 19th Century doctrines to the second half of the 20th Century, as the Government do, stands in the way of the real progress and the real interests of this country and of the Commonwealth.

5.53 p.m.

Sir Walter Fletcher (Bury and Radcliffe)

The right hon. Member for Leeds, South (Mr. Gaitskell) started his speech by daring to reprimand the Chancellor, and he finished with a most crashing cliché about 19th Century doctrines in the 20th Century. His speech was more of a take-over bid than anything else and, apart from the question of Imperial Preference, was a matter of trying to make as much mischief as possible. As the result of the by-election, which we saw in the Lobby today, shows, the takeover bid does not appear to have been very successful.

I congratulate the Chancellor of the Exchequer on his return from the Commonwealth Conference, which has increased his stature mentally and morally, and a little bit physically. This afternoon he has explained in language which everybody can understand the very real difficulties which we face, and he did nothing to minimise them. It must be remembered that for two years the position of the Chancellor has been one that was forced upon him. There is a historical precedent for it, that of the small Dutch boy who found a leak in the dyke and had to spend his time keeping his fist in the dyke to stop the flood from overwhelming his country. That is exactly what the Chancellor has been doing. When he took over office, the flood of inflation which was about to overwhelm this country was a great menace. For two years his freedom of action has been greatly constricted because he had to keephis fist in that position to stop the leak. He can now say that he has stopped it, and the figures he gave today are very considerable proof that he has done so.

I agree with what he had to say on the question of Imperial Preference. He has brought it up to date boldly. When we are busy giving autonomy to a great many parts of the Commonwealth and Empire, it is only natural that, as we give greater freedom of action, we should translate it into the economic sphere as well. Ceylon, which is a slightly marginal member of the Commonwealth of Nations, has made a contract about rubber with China, which the rest of the Commonwealth has not done. If we give no greater autonomy to countries like Malaya and West Africa, it is certain that the pattern of Commonwealth trade will be changed by them and not by us. It is wise and right of the Chancellor to be bold and to bring that out in the open. He has shown how we can retain the reality of the maximum of Imperial Preference and at the same time expand our trade.

It was very curious to see the right hon. Member for Leeds, South shying away from a general increase of trade, thinking that because we are going to expand Imperial trade that must necessarily be at the expense of any other trade. We had the most curious picture imaginable of the restrictive mind which really governs the whole economic policy of those who sit on the Opposition benches.

Mr. Gaitskell

The only way in which I can understand the hon. Gentleman's point of view is by supposing that he thinks that somehow we can get more than 100 into 100. I said that the relative amount of Commonwealth trade would decline, and so it will.

Sir W. Fletcher

That is not what the right hon. Gentleman said. If he looks in HANSARD tomorrow he will see that he made a general statement, the sense of which was that we could not have expanding trade of every sort because one sort must always be at the expense of another. That is not so. We know that the mania for keeping the governmental hand on everything has that effect, andis one of the main defects of Socialism. I should like to make one very pertinent and rather difficult point. It is clear that what emerges from the Sydney Conference more than anything else is the need for very large quantities of finance, to be found to a great extent from the City of London—from thrift here, from increasing balances, and from switching from one form of investment to another. That can be done only when sanctity of contract exists. A very bad precedent was set by the late Sir Stafford Cripps with his unilateral cancellation of the pulp and other contracts with Canada. It was followed by other countries outside the Commonwealth and, I regret to say, it was followed two years ago by Australia. We owe a great debt of gratitude to Australia for her open-handed and generous way of dealing with us in the last two years, and that has gone a great way to redeem an error of judgment.

What we want more than anything else, and what must be if we are to continue to use the machinery of the City of London, which is the only workable one available, is some declaration by the Finance Ministers of the Commonwealth that they will in all circumstances regard contracts made as having a proper sanctity. If suddenly the terms of trade alter and conditions change, these matters can be settled by discussion among the parties concerned, but not by unilateral action. There is no excuse for saying, "The public interest demands that we should take this action."

There is a precedent within the family for that kind of action, when a family which has bought a wireless set under the "never-never" system says: "We must have a television, so we will use the money that we ought to be using for the monthly payment on the wireless for the first down-payment on the television."That is a very wrong precedent. We know that there are instances of it outside the Commonwealth, particularly in the Levant and in South America, and that practices have grown up of Governments forcing communities and firms not to meet their obligations.

If there grows up in the City of London a reluctance and fear to make the freest possible use of the existing machinery of credit, who will be the sufferer? It will be development in every form, whether in Australia or the Colonies or wherever it may be. If the fear grows that contracts are not to be carried out, it is the backward people whom we wish to help, and the general creation of whose wealth we wish to assist, who will suffer. None of that development can take place unless there is a firm belief in the sanctity of the contracts of Governments.

The City of London maintains its position as a giver of credit for one reason only. It may not have the same long purse as before but it has a long memory, and it remembers who are good debtors and who are not. It does not lend money on balance sheets but on the character of the individuals who run countries, whether Governments or not, and it is far more important than seems to be realised that the slight harm that has been done by the instancesI have quoted should be undone by a firm statement from the Chancellor, and those who co-operated with him overseas, that when difficulties arise in the future, as they will, it is firmly understood by all parties that there will be immediate consultationbefore action is taken. The City of London will then, as it always has done, place at the disposal of any and every Government—as it did in the case of the previous Government in this country—the whole of its machinery for the raising of money and credit for development purposes. But it must have that assurance before the gates can be fully opened.

During my lifetime I have lived in many countries which are now calling for development—in West and East Africa, Malaya, etc. They still look to London as the centre for inspiration and leadership, and for financial support. It is on their behalf that I have ventured to put forward this plea today, because the first of all Imperial preferences will be that the countries concerned prefer to deal financially with the City of London, which has an unequalled record of assisting them in every possible way.

There has grown up on the Opposition side a practice of crying down and denigrating in every way the City of London; and of making out that it isa band of nefarious people who look after their own interests. That, as anybody who took part in the debates on the Cohen Report will remember, is not correct. If carefully studied, the record of almost every country in the world will show that it is from the better understanding of the machinery of credit in London that development has really followed.

I most passionately urge upon the Chancellor, coming back with the greatly increased reputation and respect which he has gained from pretty hard dealing with pretty hard people, to get those people to support him in such a statement about the sanctity of contract as I have ventured to put forward this afternoon.

6.4 p.m.

Mr. F. Beswick (Uxbridge)

If one thing has emerged from the speech of the hon. Member for Bury and Radcliffe (Sir W. Fletcher) it is that in this House it is dangerous to charge another hon. Member with the use of clichés. The clichés to which the hon. Member turned—some of them not for the first time—seemednot to qualify him to criticise my right hon. Friend the Member for Leeds. South (Mr. Gaitskell).

On one point I should like to congratulate the Chancellor and that is on the ready way in which he agreed to hold this Conference in Sydney. During the RecessI had an opportunity of spending some time in Australia, and one point which was put to me, possibly more than any other, was how seldom Ministers from this country go to visit Australia, although there is a constant stream, they said, of Ministers from there to London. It is admirable to emphasise in this way that there are other Commonwealth centres in which Ministers can gather to discuss the affairs of the British Commonwealth and the Colonial Territories.

I only wish that there had been a little more tangible indication from the communications which came from Sydney, and from the statement made by the Chancellor, that he intends to put some flesh on this framework of unity about which he spoke in his peroration. There were one or two parts of his speech which I found most agreeable, if I may say so; there were others which were irritating. When the Chancellor tried to suggest that the Commonwealth development—in India, and probably he was referring to the Snowy Mountain scheme in Australia, and the new mining ventures in Canada—had somehow taken place since the present Administration took over here, which is the impression he seemed to convey—

Mr. R. A. Butler

May I intervene to say that that was in no way intended, nor would I like it to be so thought.

Mr. Beswick

I think it would have been better had the right hon. Gentleman left those things unsaid.

There seems good reason why the Chancellor should make a statement in the House at an early stage. After the two statements we had, it was really necessary that he should again attempt to tell us what had happened in Sydney. I would describe the two statements made hitherto as being policies of buck-passing. The Chancellor said that he welcomed the good creditor policies of the United States. The Conference was encouraged by the Report of the Randall Commission. On Tuesday the Chancellor said: We shall also look to international institutions to play a more active and intimate part in enabling the problems of trade and finance to be tackled together."—[OFFICIAL REPORT, 2nd February, 1954; Vol. 523, c. 205.] He went on to welcome the prospect of I.M.F. credits. It seems extraordinary that a Conference composed exclusively of British Commonwealth Ministers should have spent so much time discussing the possibility of help from outside the Commonwealth.

We followed that Conference, as best we could, with the greatest interest, but there was only one point at which we could say that something was soon to be done. That was when the Chancellor said that we were going in for an audacious investment policy. That gave hope that something new and more progressive would take place, but almost immediately the Chancellor was constrained to say that, after all, it would not be very much, norinvolve sacrifices by this country.

Mr. William Shepherd (Cheadle)

Will the hon. Member tell us where he gets his extraordinary version of what the Chancellor stated?

Mr. Beswick

If the right hon. Gentle man wishes to say that, at no time, did he say that we were going to be audacious in our Commonwealth policy and then, subsequently, say that this did not mean we were going to make any sacrifices—

Mr. Butler

If I may clear this up, at one stage of the Sydney Conference a definite report was put out that the result of our policy was to be reversion to rationing in Great Britain, and the complete resumption of controls and old-fashioned austerity. I denied that because it was not the picture likely to emerge. I think that this policy will involve sacrifice and hard work for the people of Great Britain, but surely we can get a moderate view of the sense between those statements.

Mr. Beswick

I am very grateful for what the right hon. Gentleman has said, but that was certainly not the impression which was conveyed by the Press. It may be that the right hon. Gentleman bad another difficult Press conference in the early hours of the morning. No one would deny the advantages and the necessity of co-operation and assistance from outside the Commonwealth, but it seemed as if at one point we went out of our way almost to apologise for the fact that we were holding a conference. There was the statement in the Press, apparently made to reassure the rest of the world, that this Conference was intended in noway to range ourselves against the rest of the world.

Why should we be thus apologetic when we try to put our own house in order? I am becoming more and more convinced that it is quite wrong to look to the United States of America for the salvation of our economic future. We must face that fact. From time to time kind words may come from the United States Administration, but almost invariably they are followed by quite ruthless action from the business people. If we want an immediate illustration of that, we should look at the proposals which have recently been put forward with regard to Persia. Last Session we had a remarkable speech from the hon. Member for Wolverhampton, South-West (Mr. Powell), in which he declared that the first item of American foreign policy was to break up the British Commonwealth. He was severely trounced by senior Members on both sides of the House, but there was a good deal of truth in what he said.

I had the opportunity of going round the world quite recently. At every point I stayed on British colonial territory and in British Dominions. Without wishing to be melodramatic, I must say that it is quite impossible for any British person to go through these areas, studying the trading conditions, without getting the impression that there is a struggle for the very soul of the British Commonwealth as between the British and the American idea. I was in Australia when the Vice-President of the United States went there for a short stay, and I know the efforts that were put in, by a very small but influential section in Australia, to build up his visit. I say no more about that, except to remark, in passing, that we have all read of the unsurpassed welcome that has been given, in recent days, to Her Majesty the Queen of Australia when she sailed into Sydney Harbour. We have to realise, however, that the Crown and sentiment, although magnificent ties, are no longer enough.

At these conferences we should be discussing the possibility of ways and means to make secure the unity about which we all talk. Is it not possible to bring the social and political pattern of this association of nations more into line with the economic needs and possibilities of the modern world? Cannot we recognise the logic of what has happened to make possible our present state of power and material development? Both the needs and the possibilities of a wider union brought about the Confederation of the nine provinces of Canada. We had the union of the Provinces and Colonies in South Africa. In Australia, the Act of Federation of 1901, federating the previously independent States, brought greater strength and material development to that great continent. If we wish to go still further back, there was the union of the four Kingdoms around ourselves, and nearer, in point of time, we have had the Central African Federation. I am suggesting that at these conferences we should now be considering what we can do to bring, in turn, these different units into some federal arrangement.

The Chancellor referred to the possibilitiesand the physical developments which have taken place, but I feel that we have not even begun to face up to the change in the physical facts of our times. In terms of time, London is now nearer to Sydney than Sydney was to Perth at the time of the Act of Federation, in 1901. We can now fly to Montreal in one-tenth of the time it took to go from Vancouver to Montreal when the Canadian Provinces were federated.

The Chancellor said that these other nations are very conscious of their independence. That iscertainly true. No one can visit those places and talk to the people without realising that they are very independent-minded. But their independence was learned in a political and physical climate completely different from that which exists today. I should like to feel that when representatives of the United Kingdom go out to these different Dominions and take part in these conferences, they will emphasise not so much the need for independence but the necessity of equality and interdependence.

I went to Malaya and saw some of the good things which are now being done there. Elementary ideas of democracy are being learned in the new councils, and there is a great development with the new co-operative societies. In the evenings, when I talked to the people, they used to ask about the independence of their country, and when they would be able to have free elections for the Federation. They have a perfect right to ask for political independence, but surely it is silly to consider—as the hon. Member for Bury and Radcliffe apparently does with equanimity—the possibility of more completely separate economic units. I took off from the airport in Singapore in a Comet, and in a few moments we were over the boundary.

In the modern world it is absurd to think in terms of completely separate economic units, but the policies which are now being considered have reference only to that old-fashioned idea. They are not the policies we ought to be considering at these conferences, or talking about at home in order to get people overseas to discuss similar ideas.

I should like to see one customs union for the British Commonwealth. That is absolutely essential. There should also be one currency, and one central bank for the Commonwealth, and one balance of accounts forthe external trading of the area. Surely all these things are essential if we are to get the necessary mobility of men and money within the Commonwealth. Only if these aims are achieved can we have that over-all general strategy of development which is required.

My right hon. Friend spoke about the necessity for State direction of investment and trade. He was absolutely right, but our difficulty is that with our separate currencies and economic units, each totting up separately its individual balance of payments accounts, we have of necessity to think primarily of our own individual unit rather than of the best interests of the Commonwealth as a whole. Only if we have this common currency and one balance of payments account can we begin to think of theCommonwealth and how its interests as a whole can best be furthered. Reference has been made to the success of the internal policies of different nations within the Commonwealth, but only too often individual success has resulted in injury to other unitswithin the same Commonwealth. We ought to be getting together probably informally and unofficially for a time, to see whether we can get round this problem.

That brings me to the question of preferences, about which I may be allowed to say a few words, although my right hon. Friend demolished very effectively the rather vague references which the Chancellor made to the subject today. Again, as things now are, any attempt to lower the barriers between one unit of the Commonwealth and another is held to be contrary to international agreements. What an absolutely absurd state of affairs it is in the modern world that it should be so. It is taken quite for granted that any interference with trade between the Province of Ontario and the Province of Quebec can beremoved. No one starts complaining because there are free conditions of trade between Victoria and Tasmania. We do not lodge any objections under the provisions of G.A.T.T. because Texas develops trade with California. Why should it be considered to be anunsound or unfair development if we try to get a relationship between this country and, say, Australia or New Zealand which permits the freest possible trade between these parts of Her Majesty's Dominions?

In view of some criticisms made on some other occasion, I would make it quite clear that I am not seeking any closed Imperial shop. I am seeking to open up trade development within this area, and I am trying to suggest that this really should be the sort of thing that is discussed between our sister nations.

What I am suggesting, I appreciate, is by no means new. I believe it was first put forward by Lord Rosebery—or does it go back farther than that? Mr. Alfred Lyttelton pleaded for a similar idea at the Colonial Conference in 1907. A similar idea was put forward in 1911, and I think Canada turned it down. I was interested to read the other day that the late Viscount Bennett said that the proposition that Mr. Harcourt put forward in 1911 was regrettably turned down, and that since that time hehad always regretted the influence of Canada in turning down that suggestion.

It may not be immediately feasible to expect the whole of the Commonwealth to come in. We have to recognise the special position of Canada, and maybe also India and Pakistan haveto bed down in their new Constitutions, but even without those countries we have 160 million human beings, and their lands that are to be found in all climates and with all geological conditions, and with resources potentially greater than those of the United States.

I have mentioned the United States repeatedly, and I should like to make it quite clear that I am not anti-American. If we consider any grand design in these matters, then in my view what we have to seek is, first, this union of the British Commonwealth, simultaneously to encourage the union of the nations in Europe, and then ultimately I would hope to see union extended with our friends on the other side of the Atlantic. We shall not get nearer to that state of affairs while we have this concentration on the laissez faire possibilities of each separate economic unit.

It was because I saw no sign in the two communiqués that we recognised the immense possibilities of British Commonwealth development that I found them so disappointing. To some extent the Chancellor's words today have been more attractive. The words have been more attractive, but the policy still remains a disappointing one.

I hope that on both sides of the House we can get discussions started. Some believe it is now too late. I believe the hon. Gentleman the Member for East Aberdeenshire (Sir R. Boothby) has been heard to say that it is now too late to expect this Commonwealth development. I spoke to 30 different meetings of business associations in Australia. The only person who was completely against the idea was the Secretary of State for Commonwealth Relations when he arrived in Sydney and had the proposition put to him. He dismissed it completely as impracticable. As to the rest, there was great interest, and I should like to think that from here we can continue the same discussion for action along the lines of a full union of the nations of the British Commonwealth and Empire.

6.25 p.m

Sir Robert Boothby (Aberdeenshire, East)

I would disabuse the mind of the hon. Gentleman the Member for Uxbridge (Mr. Beswick) of the idea that I have ever expressed any opposition to the very interesting proposal he has put forward. If I do not follow it up tonight, it is because I do not think it is entirely relevant to this debate, which is economical rather than constitutional.

I am reluctant to strike a discordant note. A discordant note, however, I shall strike. I would not dream of being as rude about the Sydney communiqué as the "Economist" in that shocking remark quotedby the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) in opening for the Opposition: A jumble of careful contradictions in eight pages of double talk and bad grammar. That is really going much too far, in my view. However, the basic fact remains that the drive for free multilateral trade and free currency convertibility is to continue. That is the objective. G.A.T.T. is all right because Empire Preference is really out of date. The attempt to build a trading area within the Commonwealth and Empire by means of a development of the preferential system is to be abandoned. I deliberately use the word "development"of the preference system, So is the attempt to co-ordinate the economy of this area with that of Western Europe; for you cannot co-ordinate something with nothing. It has to be the world for us—or nothing. I hope it is not going to be the latter.

Well, we tried it before, after the First World War, and it was not a great success. In the 1920s we assumed—most of us, I think—that we could go back to a recognisable version of the international economic system of the 19th Century, based on free trade, a gold standard, Liberal ideas, and Adam Smith. This ended in the greatest economic disaster known to history. In the 1930s Britain led the world out of the economic pit that we had dug for ourselves by supping the anchor of gold, expanding credit, letting the £ find its own value, protecting the home market, and developing the system of Imperial Preference.These are the things which enabled us to lead the whole world out of the depression between 1933 and 1937. We are now, it seems, to seek to establish wider markets and a freer system of trade. Non-discrimination and the Most-Favoured-Nation Clause once again hold sway; and free convertibility of sterling is once again the goal.

I want to put quite briefly a serious argument to the House. The Sydney communiqué must be considered in conjunction with the Japanese Trade Agreement and the Randall Report, which are practically simultaneous. Let us consider first the Japanese Pact. I shall be quite brief about it. Let me say at once that I do not fear the effects of the pact as it stands nearly as much as some hon. Gentlemen, particularly those connected with Lancashire, seem to fear them. Moreover, it can be revised. I do not feel deep alarm about that. What alarms me—and I am glad to see my hon. Friend is here—is the argument with which the Economic Secretary sought to justify it to this House. He said: We did not feel that in these circumstances—of no balance of payments difficulties remaining—we could ask the Colonies…to restrict their imports of Japanese goods. And again, …it is impossible for this country to say to the Colonies, 'You must restrict the import of Japanese goods in favour of Lancashire.' "—[OFFICIAL REPORT, 1st February, 1954; Vol. 523, c. 34 and 36.] I was deeply alarmed by this; so was the "Manchester Guardian." My hon. Friend has, no doubt, read the comment of the "Manchester Guardian's" leading article: This is certainly a very odd Tory Government… it began. Here was Mr. Maudling, for the Treasury, enunciating the pure gospel of Free Trade and cheerfully throwing over 20 years (or rather 50 years) of his party's policy…

Dr. H. Morgan (Warrington)

Bravo.

Sir R. Boothby

He is probably too young to recall 1934 and the following years, when a Tory Government did tell the Colonies to restrict Japanese goods.

The Economic Secretary to the Treasury (Mr. R. Maudling)

I do not know whether my hon. Friend also noticed that on Saturday the "Manchester Guardian" had counselled caution to the critics because the Government had a very strong case.

Sir R. Boothby

That may well be, but it did say that my hon. Friend was advocating the "pure gospel of Free Trade."That is what I found alarming. It said that my hon. Friend was too young to remember 1934, but I am not too young, and I am by no means sure that I am the one who is out of date.

I turn now to the Randall Report. This seems to me to be far more serious, because it brings us right up against the problem of the dollar gap, now running at 3 billion dollars a year, in a period of great American prosperity. The Randall Report provides no solution whatever to the problem of the dollar gap. First, the "escape clause" and the "peril point"provisions are retained. This means that whenever any American industry thinks itself seriously threatened by imports, it is entitled to ask for a rise in tariffs to the sky—and will get the Congress to do it. Non-discrimination is also retained, for everyone else—except the United States. Economic aid to foreign countries is definitely to be terminated. That we know, and accept. That, I think, is right; but do not let us delude ourselves that it will ease our difficulties. Fourthly, inter-Governmental commodity agreements are almost savagely attacked. That puts paid to the rubber scheme—my hon. Friend may feel depressed about this and all the other commodity schemes which would have been an admirable idea, which worked before the war and could work again; but are now, from the practical point of view, denounced and rejected by the U.S.A.

Finally—and this is the most alarming thing—exports in the event of any kind of recession are by one means or another to be subsidised, particularly exports of food. I do not know whether my hon. Friend saw a very amusing cartoon in one of the American newspapers the other day on farm maintenance prices, in which one American was saying to another, "Well, we are paying such high taxes, and have now got butter up to such a price, that we cannot afford to buy it ourselves; so let the foreigners have it at half price." That makes a good deal of sense, because it is what may easily happen, and has, indeed, already begun to happen on a moderate scale. We may well have to face an avalanche of food imports from the United States at low prices.

What are we going to do about that? Ispeak now as the representative of an agricultural constituency. The Chancellor of the Exchequer seemed to be fairly gay about the Randall Report, but I do not think there is much to be gay about, and I should like to quote to the House—I seldom make a speech nowadays without quoting—

Mr. R. A. Butler

My hon. Friend will, no doubt, wish to be accurate. What I said was that it all depended on the action taken.

Sir R. Boothby

On that point, I quite agree. What I now have to say is relevant tothat interruption, and may be of some interest to my right hon. Friend. I am quoting from Walter Lippmann, because he writes so well and is so sensible. What he says about the Randall Report is of extreme interest to this country: The fact of the matter is that what went on during those three months was not much of an investigation of foreign economic policy; it was really an investigation into the chances of persuading Messrs. Millikin, Reed and Simpson to agree to some kind of foreign economic policy which the White House could support. In this the commission failed.…As a result the majority report is a mixed and mediocre and often obscure re-hash of things that have been said more clearly and more expertly by others. It is rather like the "Economist" on the Sydney communiqué. Walter Lippmann goes on: Senator Millikin has not been converted and he has not been persuaded to be a good fellow and go along. Why? Because President Eisenhower and Mr. Randall were acting on a theory which is wishful thinking—namely, that men like Millikin, Reed and Simpson do not really believe and do not really mean what they have always said that they believed and that they meant. That is fairly decisive; and if my right hon. Friend the Chancellor of the Exchequer anticipates any very encouraging or concrete results from the Randall Report in the Congress of the United States, he had better start bracing himself now for a fairly bitter disappointment.

I joined the Tory Party what seems like a centuryago because I believed in the Empire, in protection and in Imperial Preference. To that I added, under the pressure of contemporary events, import control and long-term contracts; and I may even say bulk purchase contracts—I have always said this—as and when they appeared desirable or necessary for the particular commodity under consideration, because I saw that this might be a good method of developing Imperial trade and the resources of the Commonwealth. I have always believed that, and I am on the record.

I opposed the return to the gold standard, and free imports, and the consequent deflation, and Snowden's mad attempt to cure the economic depression of the 1930s by increasing doses of deflation, because I agreed with Keynes that in periods of recession or of impending recession, what is called "a sound liberal economic policy" is lethal. That is the truth. I am sorry to have to say it to my right hon. Friend, but within his heart he knows it to be true.

By clinging to the gold standard, convertibility, free trade, monetary restriction and a pound-foolish economy like glue, Snowden brought us to an abyss of unemployment, low production, and engineered poverty without any parallel in our history. I thought that that would be the end of it. Now I am not so sure.

Post-war experience has not been too happy. I am not going into it all; but the words "Bretton Woods" do not conjure up any heartfelt feelings of pleasure or satisfaction, I think, on either side of the House. It is that little institution which provided 3 billion dollars to close a dollar gap of 20 billion and then did nothing about it.

Then, I seem to remember an American loan. I was against that, and again I was right. This was an attempt to get back to convertibility. It lasted for five weeks, not very agreeable weeks, and then down went convertibility. Down the drain with it went 300 million dollars, the rest of the American loan, which was not very encouraging. I got very little support in the House for my opposition to it.

Then, in 1949, we had Sir Stafford Cripps declaring that Great Britain must attain economic independence and self-sufficiency by means of a tremendous export drive, particularly to the dollar area. And now we have a Chancellor of the Exchequer saying much the same thing, and the goal is still convertibility, and that it can only be achieved by more exports, particularly to the dollar area.

The Treasury, when they get an idea into their minds, are remarkable and wonderfully tenacious. Chancellors of the Exchequer may come and go, parties come in and go out, but the Treasury goes on for ever. To get them to change their mind or to alter a policy is like trying to prise a limpet off a rock. You break your hand and the knife with which you are trying to do it, butthere they remain at the end, as limpet-like as ever.

I am quite convinced that the Chancellor of the Exchequer believes in an expansionist economic policy. He has said so often in the past. He repeated it with emphasis today. My point is that he may easily get himself into a position where he cannot carry out an expansionist economic policy, however much he wants to do so; because the fundamental economic disequilibrium in the free world today, and its symptom the dollar gap, is no temporary phenomenon. It is the outcome of an economic process which has been going on since the beginning of the century and has been hastened, but not caused, by two world wars.

The truth is that it is quite impossible for the currency of the world's biggest seller to do the same job as the currency of the world's biggest buyer. The dollar cannot do in the 20th Century what sterling did in the 19th Century; and we have not got the necessary reserves any longer, as the Chancellor of the Exchequer himself admitted, to carry out the policy that we did when we were the richest nation in the world, importing freely from everywhere and lending our vast annual export surpluses to every country all over the world. As one who has a great affection for clichés, and at the risk of offending my hon. Friend the Member for Bury and Radcliffe (Sir W. Fletcher), whose interesting speech we all enjoyed, I would say the we cannot cure the ills of the 20th Century by applying the remedies of the 19th. That is a quotation from myself, andI have used it in speech after speech in this House.

I must confess that I am getting a little tired of these continuous exhortations from the Treasury and from whoever may be the Chancellor about higher production, increased efficiency and greater exports. These things depend largely on policy. We had a pretty low production in 1952, and a remarkably good production in 1953. That was not because everyone suddenly decided to be idle in 1952, and to work like the devil in 1953. It was because in 1952 the Chancellor had a restrictionist Budget, rightly, I think, in order to meet our trade deficit; and in 1953 he felt able to present an expansionist Budget, with a result that was immediately apparent.

If our wretched exporters are constantly harried and told to go here and there, to sell more, to go to the Argentine and other South American countries without any sterling and endless import restrictions, then to go to the United States, where they are determined to have no manufactured goods imported at all if they can help it, then to go to Germany and find themselves up against tremendous competition—that is a little unfair. They do their best, but their efforts must be governed by the policy pursued by Her Majesty's Government.

I suggest that in a worldsuffering from an endemic economic disequilibrium, with a dollar shortage as a result, the long-term effect of non-discrimination, which is the policy to which we now seem to be committed, can only be to throttle down the total volume of world trade. We have had a good year, in the main due to the high level of activity in the United States. Now we are faced with the possibility of an American recession or "adjustment," as I think the Chancellor prefers to call it; but I do not think that this "adjustment"is going to be so very fierce. I do not take the gloomy view of Mr. Colin Clark, or of the right hon. Gentleman who opened this debate for the Opposition. I think that they are in a recession now, but I think that there are signs of their getting out of it, and I do not think there is any reason to suppose that it is going to deepen to any great extent.

This, however, is not going to solve our problem. We are now faced with the certainty of the termination of American economic aid, with increasing German and Japanese competition, and continued and natural and, if I may say so, increasing reluctance of the Americans to import manufactured goods. Why indeed should they import manufactured goods in large quantities from abroad? They do not import them because they do not want them, which is a pretty good reason; and that is why there is a good deal to be said for Senator Millikin, Mr. Reed and Mr. Simpson.

The Strasbourg Plan was an attempt, by co-ordinating the economies of the sterling area and of Western Europe, to meet this situation. It appears to have been shelved. I regret that. It is much better than anything that has appeared in the Sydney communiqué and I have every reason for saying so. I think that it is a first-class document. The remedy, I believe, is to build in the non-dollar world, not an exclusive economic unit, but an economic unit and trading area capable of standing on its own feet, with adequate control over its dollar imports. We have not got that at the moment.

The Chancellor referred to an article in the "Economist"about one and a half worlds. It said that maximum non-discriminatory trade within the non-dollar world should be accompanied by effective control over dollar imports for the area as a whole; and that there should beas much dollar trade as we can do, which really means that we should spend the dollars that we earn. That is quite sensible, but I do not think that this policy is necessarily leading in that direction. We are at present taking excessive dollar imports, and we are far too dependent on foreign imports of meat, tobacco and coarse grain.

Mr. John Strachey (Dundee, West)

Wheat?

Sir R. Boothby

And meat. I further think that the Chancellor might consider stopping the import of oats to this country. We can provide him with all the oats he wants from Scotland, at very reasonable prices. Can the right hon. Gentleman really contemplate the indefinite importation of Virginian tobacco from the United States at the level we are now doing? It may reinforce his internal revenue, but I do not think that, as a nation, we can afford it. There is Rhodesian and Turkish tobacco; and if we do not like having it in our cigarettes, we shall just have to lump it.

These proposals, in so far as they can be called proposals, because there are not many in the communiqué, mean less and not more discrimination. There was a very revealing sentence dropped by the Chancellor in his opening speech this afternoon when he said, "We are not standing for the abandonment of discrimination," and then there was a slight pause, and there came the words, "before we are ready."I think that discrimination is a good thing and not a bad thing. We should never abandon it, and it should go on for ever and ever in the modern world.

All this means that the lure of dollars was still shining before their eyes at Sydney, and that the pursuit of dollars is to be continued at any cost. It also means a looser rather than a tighter control over imports. I confess that I find this a frightening prospect.May I give agriculture as one example? If we are now contemplating the free import of food into this country, without any control or protection at all, what is going to be the result of that, if we are then going to try to implement the provisions of the 1947 Agriculture Act? It is going to cost the taxpayers of this country so much money that the mind boggles at the thought. I do not think that we can do it.

That is what is upsetting the farmers at the present time. I have been telling them that it is going to be quite all right; and that the Treasury will find all the money. I have said we shall import eggs at a shilling a dozen and then pay British farmers 4s. 6d. a dozen—£30 million a year; that we shall pay them another £80 millionfor this and £120 million for that, and will find the money. Somehow they do not quite believe it. That, I think, is what is worrying them at the moment. I confess that, in my quieter moments in the middle of the night, it sometimes worries me. I think that the Chancellor will really have to consider seriously whether he can go into free, uncontrolled markets for food from all over the world indefinitely, and at the same time keep British agriculture at anything like its present level, still less expanding.

What has happened? I think I know what has happened, and it is an extraordinary phenomenon. The Tory Party have in fact become the Liberal Party—that is what has happened. The right hon. and learned Member for Montgomery (Mr. C. Davies)is going to take part in the debate, and he can make this point better than I can. I hope that he will not accuse me of any breach of confidence if I say that the Leader of the Liberal Party, when I met him in the Lobby the other day, seized me by the arm and said in his charming way, referring to the Chancellor of the Exchequer, in terms almost of rapture, "Sir Robert Peel has come again."That is not quite fair upon the Chancellor of the Exchequer, because at the present moment the Tory benches are plastered with Sir Robert Peels. There are hundreds of them. There is one—the hon. Member for Scarborough and Whitby (Mr. Spearman)—not very far from me. I am a little more confident about the hon. Member for Preston, North (Mr. J. Amery) who sits on my right; he is becoming one of the few exceptions left.

Sir Robert Peel was ahead of his time. There is no doubt about that. Are my hon. Friends, who have gone Liberal, quite sure that the modern Sir Robert Peels are not a little bit behind the times?Are they not a little afraid of becoming obsolete? It is a terrifying thought that the Tory Party should become obsolete; but it will happen if it goes on in the direction of Liberalism, because the truth of the matter is that in the 20th Century Liberals are interesting and rather lovable specimens from a bygone age. If my hon. Friends mean to go ahead with this business of becoming Liberals, they will soon find that out—and the electorate may take that view, too.

In a debate on 21st December, 1934—it is a long time ago—I said: I feel a little melancholy because some of us have been coming to this House for 10 years and pleading for a constructive policy on broad lines, and nobody has paid the slightest attention to us at any stage throughout those 10 years. Yet looking back, and judging by the march of events, I am surprised at the number of times I have been right, and different Governments have been wrong…The doctrine of infallibility has always applied to the Treasury and the Bank of England."—[OFFICIAL REPORT, 21st December, 1934; Vol. 296, c. 1560.] I have only one amendment which I wish to make this afternoon to that statement, and it is to substitute the figure "30 years" for the figure "10 years." Otherwise I stand by every word I said.

I conclude with a quotation from a speech given by one who is not a Liberal, and who could never be accused of being a Liberal—the right hon. L. S. Amery. He has always preached the faith which brought me into the Tory Party. He said recently: I have talked in terms of economics. But the issues go far deeper. What is at stake is nothing less than the whole future, not only of this country and of the Commonwealth, but of the civilised world. Is that world to be nothing better than a permanent battleground between two super-States, each with its somewhat crude ideology, each with its retinue of satellites and dependencies? Is the Commonwealth to dissolve, leaving its members to drift into one camp or another? Is all that great heritage of culture embodied in the ancient nations of Europe to cease to exercise its influence in world affairs? Surely there is a better way—the way of establishing a broader and sounder foundation by mutual co-operation, within each of these two groups and also between them. I think that is profoundly true. I believe we could build up a very powerful, very strong economic unit out of the sterling area and the Commonwealth, and in close co-operation with the countries of Western Europe. I think it would be very much better to use the capital of Germany to irrigate and develop the under-developed countries of the sterling area than in intensive international cut-throat competition between this country and Germany, which is what is now developing. That has always been my belief.

Once more I am alone; and I am right. But that is no new position for me. I would say to my hon. Friends that although they may stray into the ancient moth-eaten paths of Liberal orthodoxy, one day they will return to thetrue faith of Tory democracy, which is the only faith for the modern age.

6.54 p.m.

Mr. H. A. Marquand (Middlesbrough, East)

I shall not attempt to reply to the charming and entertaining speech of the hon. Member for East Aberdeenshire (Sir R. Boothby) for one very good reason, that the reply obviously needs to come from the other side of the House and not from these benches and, for another good reason, that it is my ambition tonight to make the shortest speech which will be contributed to the debate.

I rise to make only a short intervention but one which, I thought, might be of some importance in view of what I heard the Chancellor say earlier this afternoon. We all agreed with him, I am sure, when he laid very great stress upon the importance of economic development. There is no doubt about its importance, and I think he and other hon. Members will agree with me when I say that in this problem of economic development no part of the sterling area is more important than India. That is because India contains a population probably equal to that of the remainder of the sterling area put together, and because, unfortunately, the majority of that population lives at a standard of living very much below the level of most of the rest of the sterling area.

India's development plans are vitally important. A year ago I was privileged to see a little of them and subsequently to study in more detail the Indian five-year plan. India, having a well-worked-out five-year plan, prepared by skilled and competent people, looked everywhere for the necessary resources to undertake as big a plan of development as she could in five years. She took into account possible help from the World Bank. She took into account her own ability to raise savings from her own population. She even took into account the possibility of using voluntary labour.

But at the end of it all, the Indian Government were forced to the conclusion that to carry out the minimum plan which might be necessary to help them in the five years at least to hold a balance in the race of population against resources, some of their plan must rely on deficit financing, that is to say, upon an unbalanced budget.

When it was realised in India that the plan depended in part upon deficit financing, people very properly and naturally said, "But deficit financing is inflationary. Is it not a very dangerous thing to incorporate this proposal of deficit financing in a plan?" The answer to that question is, of course, that if the deficit financing does not go far beyond the totalamount of the sterling balances upon which India can draw, then the net effect should not be too seriously inflationary. I thought that was a reasonable answer to the criticism of India's five-year plan.

Nevertheless, a year ago India was relying upon deficit financing and hoping to offset any inflationary effect of it by drawing down her sterling balances. Yet we were told this afternoon by the Chancellor, first of all, that the Indian budget is in balance and, secondly, that India has not been drawing down her sterling balances. Looked at strictly from a financial point of view, from the point of view of the old economics to which the hon. Member for East Aberdeenshire, referred, that may be all very well; it may be a source of congratulation and pride, and as such the Chancellor seemed to refer to it this afternoon.

I want to ask very seriously whether that is really so. If it be true that there is no deficit developing in the Indian budget, if it also be true that she is not drawing down her sterling balances, does it not mean that somehow or another and for some reason or another—I do not know the reason—she is failing to fulfil the plan according to expectations? If that were so, it would be disastrous. I am delighted to see the Economic Secretary to the Treasury shaking his head. His knowledge is much more up-to-date than mine on this point. That is why I have asked the question.

My sole purpose was to ask the Government if they could say—if that is possible at the end of the debate, so much the better, but I would not really expect an answer this evening, I would only suggest that it be looked into—whether it could be that there was some failure on the part of the United Kingdom to supply capital goods and the like for which India had asked and, therefore, her sterling balances had not been drawn down. I should be horrified at the failure of India's modest five-year plan—modest in comparison with all that needs to be done or could be done in India. It is solely on that point that I wish to be assured, and I hope that my hon. Friends who wish to participate in the debate will forgive me for intervening.

7.1 p.m.

Mr. G. P. Stevens (Portsmouth, Lang-stone)

I do not wish to follow the right hon. Member for Middlesbrough, East (Mr. Marquand) on the subject of the question which he has addressed, save to say that India's Finance Minister was, I understand, at Sydney and must therefore accept responsibility for the joint authorship of the communiqué we are discussing this evening.

I wish to begin by supporting as enthusiastically as I can the suggestion of the hon. Member for Uxbridge (Mr. Beswick) when he said that he was quite certain that the people of the Dominions would greatly welcome more frequent visits of senior United Kingdom Ministers to those countries. From conversations I have had with representative people from the Dominions, I am quite certain that the hon. Gentleman is perfectly right. I hope that the Government will pay the greatest attention to that suggestion.

I have been somewhat puzzled by the references which have been made, first by the right hon. Gentleman for Leeds, South (Mr. Gaitskell), and subsequently in all the Opposition speeches, to the "very vague nature" of the terms in which theSydney communiqué was couched—"full of clichés,""platitudes" and things of that kind. I was so puzzled that I did what very clearly some speakers had not done: I referred once again to the document in question.

I find right at the beginning something which seemed to me neither platitudinous nor cliché-founded, if that is the correct term. I quote: The object of our present meeting was to consolidate the economic progress made by the sterling area and the Commonwealth during the last twelve months… There is nothing vague or platitudinous about that. It is a historical statement of fact. [An Hon. Member: "What does it mean?"] I am quite aware that it can, to certain Alice-through-the-Looking-Glass minds, have two different meanings.

Sir R. Boothby

How does one consolidate progress?

Mr. Stevens

This is a document with eight joint authors, and for them to have got so near to pure English as "consolidate" is something of a triumph. To get away from that difficulty, if indeed it is a difficulty, I will continue my quotation: During the last year the sterling area countries of the Commonwealth have made great strides towards the objectives which they set for themselves in January, 1952,.. My point of difficulty, puzzlement and wonder comes from my recollection that after the conferences of the Finance Ministers in Ottawa and this country over the past two years, the right hon. Member for Leeds, South and others, possibly even the hon. Member for East Aberdeenshire (Sir R. Boothby), have on every single occasion referred to the "vague" and "platitudinous" terms of the communiqués. Some of us have not felt that kind of language was quite justified.

I should have thought that the proof of the pudding was in the eating. Just as those critics of communiqués have been proved by subsequent events to have been entirely wrong on these previous occasions, so I believe they are wrong on this occasion. One of the difficulties is that most people can add two and two together without much difficulty, but I am not entirely certain that the average person is capable of distinguishing which is two and which is not.

I have looked, not only through this communiqué, but also at the statement made by my right hon. Friend theChancellor in the House on 2nd February, and his subsequent answers to Questions; I listened to his speech this evening, and I then read the communiqué. I found two things there which did not seem to be in any way platitudinous or inconsequent but,on the contrary, to be pregnant with meaning and perfectly clear. I have, as I believe, recognised two and two, and I believe they make four.

On 2nd February my right hon. Friend referred in the House to the difficulty of extending the area of Imperial Preference, a point which has been raised several times today. He said, in the course of a reply to a question after his statement, that the United Kingdom Government could not interfere with the sovereignty of individual Governments. I should have thought that that was pretty obvious. That was the first thing I got hold of. The next thing, which seemed to marry with it, was a phrase in the Sydney communiqué which refers to the provision which has been made in the past year by the United Kingdom Government, and which makes this comment: the provision of finance from the United Kingdom will substantially help its own exports. The Chancellor referred to that again this afternoon.

I should have thought that those two things were very closely associated. I should have thought that, taken together, they indicated not that the Tory Party is going back to an effete Liberalism, if there is such a thing, but that, on the other hand, the pattern of inter-Imperial trade is changing and some new method is necessary in 1954 to stimulate and encourage Imperial trade which was not perhaps the appropriate method 30 or 35 years ago—I forget how long—when the hon. Member for East Aberdeenshire first entered the House.

It seems to me that trade may follow capital investment, and I see that the communiqué refers to the fact that: In 1953 the United Kingdom Government authorised loans and grants totalling £120 millions for development in the sterling Commonwealth,… area. Obviously, as it seems to me my hon. Friend the Member for Bury and Radcliffe (Sir W. Fletcher) rightly indicated, much larger sums will be necessary in 1954 and subsequently for Commonwealth development.

That leads me to the point I wish to make, which is that whether that development is carried out by means of Government loans, Government grants or capital raised on the London market, all those capital funds come from the savings of the people and from no other source whatever, because the Government have no source of capital as such themselves. That saving can come only from the balance of the proceeds of the sales of production, after paying the necessary expenses for raw materials, wages, etc., and also through the abstention by the producers of unnecessary expenditure, however desirable it may be.

Therefore, if what I have so far said is correct, it follows that if there is to be more capital for Commonwealth development, as I think there must be, two things must happen. First, there must be more production; and second, there must be a larger residual from the proceeds of that production. There is no doubt in my mind that there would be more production and a larger residual and, therefore, more capital available for Commonwealth development, if the burden of direct taxation in this country were less severe than it is at the present time.

As has so often been said previously, greater productivity requires more efficient machinery at higher prices. It is perfectly true that the restoration of the initial allowances in the last Budget were of some assistance in that respect, but what that fact overlooks is that a very great part of the trade of this country is the entrepôt trade, the merchanting trade carried on to a large extent without plant and machinery.The merchanting businesses are not helped in any way, or only to a very limited extent, by initial allowances on plant and machinery. Furthermore, it is quite obvious that, as turnover increases, so the necessity for greater stocks arises, as does the necessity for financing a greater number of debtors. Those are additional demands upon capital which initial allowances do nothing to help.

I remember very well my right hon. Friend the Secretary of State for the Colonies, in a speech in 1952, saying that we could not invest a deficit in colonial development. That, of course, is perfectly true. Since then, as the communiqué, which is supposed to be so devoid of meaning, so accurately says, we have made enormous strides in the way of dealing with the balance of payments problem; but a great deal more progress is necessary. I welcome this communiqué from Sydney, and I most sincerely congratulate my right hon. Friend the Chancellor on the very able part he has played in the preliminary work and in the authorship of that document.

We all want Commonwealth development. This seems to be a cliché's night out, and I see no reason why I should not be guilty of my own cliché. We all want Commonwealth development in harmony in peace as we had unity in war. To my hon. Friends on this side of the House that is not in any shape or form a cliché. It is an indication of a belief we hold most passionately and sincerely. Today current trade follows yesterday's development loans. I believe the Chancellor would be doing the greatest possible service to the provision of such loans by a reduction of direct taxation, which alone can make possible saving on the requisite scale.

7.11 p.m.

Mr. Clement Davies (Montgomery)

I find myself in agreement with the speech of the hon. Member for Langstone (Mr. Stevens). I found the speech of the Chancellor of the Exchequer and his statement the other day as definite as one could expect a statement of that kind to be in a declaration of his policy. If I may, I should like to refer to one sentence in his statement which sums up his policy: We confirmed the wisdom of our decision taken a year ago to work towards a freer system of trade and payments between the dollar and non-dollar world. Indeed, I know of no other approach which would keep the policies of the old and new Commonwealth countries and of Canada in step."—[Official Report, 2nd February, 1954; Vol. 523; c. 205.] What could be more definite and clear than that? His speech today was in elaboration of the policy therein declared.

I welcome, as everyone does, these conferences which take place from time to time between members of the Commonwealth in which they can set out their position, their difficulties and their problems and see how far they canagree together. Is it possible to imagine them coming to any other agreement which would have kept them together, working for their common end and the common good of the world, than through the policy which has just been enunciated by the Chancellor of the Exchequer? Anything else is bound to lead to disagreements, jealousies, envies and all that kind of thing. They cannot be expected to bind themselves more closely together by agreements which may lead to quarrels and which could end in disaster.

I welcome the statement which has been made by the right hon. Gentleman. I think that that is the policy which will lead not only to a strengthening of this country, but a restoration of our position in the world. By that means we strengthen the economic positionof the whole of the Commonwealth and, indeed, of the world, for we are brought together, as far as we can be, to assist one another.

There is one matter which has defeated me ever since the free nations decided that each could not stand alone in defence of itself against an aggressor. They did not learn that lesson from the Kaiser or even from Hitler. They learned it for the first time when aggression was threatening from Russia. They agreed that they could not stand alone, and so they came together and formed N.A.T.O. At the same time they left standing all the restrictions on trade between one another, and they failed to remove those things which cause irritation, quarrels, jealousies and envies. They still exist.

What the right hon. Gentleman the Chancellor of the Exchequer is saying is: if we are to maintain our common defence, we also ought to remove all restrictions on the movement of trade between one another. That undoubtedly would lead to a better flow of trade and better conditions for all the people wherever they may be. I agree with the hon. Member for Uxbridge (Mr. Beswick) that there is great need to assist the people who are not as well off as we are. When I hear that being said from this side of the House, I also recollect what was said the other day from the same Labour benches, namely, that the people should not be allowed to purchase in the cheapest market, but they should be guided as to what they should get and that they should pay more for it. How that is going to help them in their development, I do not know.

I understand the policy of the right hon. Gentleman, but he was challenged by the former Chancellor of the Exchequer, the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), who asked what the Government's policy was, saying that we were entitled to know. I should have thought that that policy was plain enough, but what I should like to know, standing objectively between the two sides, is, what is the policy of the Opposition? As I understand it now, this policy of free trade, which has been enunciated by the Chancellor as being the desirable end to which he is working, is anathema to the Opposition.

Mr. Gordon Walker (Smethwick)

It is not the end but his immediate prospect which is anathema to us.

Mr. Davies

Let me remind the right hon. Gentleman what the Labour Party are asking for. They suggest that the Chancellor should not pursue his policy of allowing free purchases to be made. It is said that we would lose control if we did that, and control is needed in order to maintain prices in this country. But the people here will have to pay for that either in increased prices or in increased taxation.

I gather that the immediate policy of the Opposition is to increase prices and costs. Yet there is hardly a day in this House when I do not hear a challenge flung across the Floor about the rising cost of living. The country is entitled to know which is the true policy of the Opposition. Is it that they want, as obviously the Chancellor wants, freer and more open markets, trade with every country, increased export trade with purchase in the cheapest markets we can possibly find of raw materials and even of food? Is that the policy to which the Opposition object? If it is, then they had better say so and they had better say also that it will mean dearer raw materials and dearer food.

One other matter which I wish to mention is the speech of the hon. Member for East Aberdeenshire (Sir R. Boothby). I have felt for some time that although there is no coalition on the Front Benches between Government and Opposition, there is a very considerable coalition among hon. Members. The hon. Gentleman made his position perfectly plain tonight. He has been sitting on the wrong side of the House for many years. Undoubtedly he said tonight that he is the planner of planners. I do not believe in that kind of planning. The hon. Member seems to know better than the ordinary person what is good for the ordinary person, what he ought to buy, where he ought to buy it, where he ought to manufacture and everything else of that kind. There is the true Socialist. It is perfectly obvious where that is leading.

Sir R. Boothby

I am not a Liberal. That is all I said.

Mr. Davies

There was one matter which I learnt from the hon. Gentleman. The rest I did know. Although I have known the hon. Gentleman now for 25 years, I did not realise that one had to be careful even in a private conversation lest he might use it for his own advantage. That is something to which we are not accustomed in this House. I hope that I shall never hear it again from the hon. Gentleman or from anybody else. What I said about the Chancellor of the Exchequer is perfectly true. It may well be that he is now taking up a line which was taken up to the advantage of this country by Sir Robert Peel. Now the hon. Member for East Aberdeenshire joins with the Opposition. Shades of Philip Snowden and all that he meant to the Labour Party when he was their great leader in economic matters.

The hon. Gentleman now joins with them in considering that free trade and all the Liberal doctrines were lethal. One recalls what was the position of this country 115 years ago when Sir Robert Peel changed the tide. Ports were opened, trade began to flow, unemployment ceased, wages began to grow and the standard of living was raised till it was second to none in the world. Lethal! This country was the creditor of all countries and to it every one of the protectionist nations, even the United States itself, owed money. This country was the insurer of the world, the carrier of the world, and the one and only country that could afford to stand alone. It stood alone thanks to the policy that was then adopted.

The hon. Member for East Aberdeenshire joins all the others in saying. "I know better than those pioneers, those great people, manufacturers, leaders of industry and so on—who went here, there and everywhere and started these new industries and built up and strengthened the country."

Sir R. Boothby

First, I should like to apologise to the right hon.and learned Gentleman very sincerely if I quoted what he did not wish from a private conversation. It seemed to me merely an apt, amusing, indeed a brilliant, observation—not to be taken very seriously. In reference to what he is saying now, I want to make it clear—I thought I had made it clear in my speech—that I never said that the policy of Sir Robert Peel was wrong for the 19th century. I think that it was right for the 19th century. I say that it is wrong for the 20th century.

Mr. Davies

I should say that what was right for that century is right for this century when the world is confronted with these enormous difficulties again. What has been largely the cause of all the disputes there have been between the nations which have led to two world wars and the destruction of millions of lives? It has been this jealousy, envy and hatred brought about by extreme nationalism, built by these barriers against one another until at last there is a cry for elbow room. Is this the moment when this country should follow Bismark in starting a Zollverein which bred a Kaiser and a Hitler and two world wars?

The one and only way in which we can bring people together is to open the gates of free trade with a free movement of people. That is what the right hon. Gentleman the Chancellor has as his aim. It is a way which will not only improve the conditions of the world, but will bring about the peace which we all want.

7.27 p.m.

Mr. J. N. Browne (Glasgow, Govan)

This is a most important debate and I am surprised that throughout more hon. and right hon. Gentlemen have not been present. I am glad to see that the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell) is in his place. I always listen with the greatest interest and attention, very often with admiration, to what he has to say. I had hoped that today we would get a constructive speech. He started off in an entertaining way with a reference to clichés. As he has not been here all day, I will tell him that nearly everyone else has mentioned them. I recall having an argument with the late Dylan Thomas, the poet, when he said to me, "Do not talk to me in clichés."That was the end of the argument. I know just how my right hon. Friend the Chancellor of the Exchequer must have felt.

But reference to clichés was not very relevant to the debate. The right hon. Gentleman the Member for Leeds, South complained about the bad grammar of the report, and that was not very relevant to the debate either. He went on to be critical of the publicity and he read interminable excerpts from the Australian newspapers. As one who reads the "Daily Herald" every day, I am sure that he, too, knows that many reports can be put in newspapers which do not quite correctly reflect the true situation.

What else did the right hon. Gentleman do? He belittled the achievements of the Chancellor. He added nothing constructive and he made—I think his has been the only party political speech—party points out of the Australian wheat situation and Imperial Preference. He seemed to be a sort of hopeful prophet of doom with the hope that everything will not go right. I am sorry that we did not hear something, as we sometimes do, that was worth listening to.

Let me join issue with—touse his own expression—the interesting and rather lovable specimen from a bygone age, the hon. Member for East Aberdeenshire (Sir R. Boothby), who talked about Imperial Preference. I should like also to bring in at the same time the names of other hon. Members who have spoken, including the former Chancellor of the Exchequer the right hon. Member for Leeds, South, and, I think, the hon. Member for Uxbridge (Mr. Beswick), who both spoke of the necessity for State intervention and guidance in matters of Imperial Preference.

I am, maybe, naïve, but it seems to me that it takes two to make an agreement and that we in this House keep on expecting our Front Bench—whether we sit on the Government side or not—to make those agreements which we would like to make, forgetting there is some other party to them. I am in favour of Imperial Preference where it is possible, but any of us who have tried to negotiate a contract know that it must be favoured by both sides. We are in a changing world and all too frequently, I am afraid, this House forgets that fact about international agreements.

The right hon. Member for Leeds, South asked whether Imperial Preference was a fact. I who have something to do with selling goods abroad can tell him that, in fact, and not as a matter of speeches in this House, Imperial Preference is a fact, and that where it exists it is bringing business to this country and work to our people.

The hon. Member for Uxbridge expressed surprise that we could no longer base our economy on that of the United States and that we could no longer rely on the United States. I do not know whether he believes he has suddenly discovered a new thought, because such a thought has been in the minds of most business people for a very long time.

We have to decide whether we should set as our goal independence of the United States or whether we should set ourselves another goal which I believe we can achieve. If we take the sterling area and the dollar area, with all the resources of manpower and raw materials in each today, we can set ourselves the goal of making the sterling area the strongest currency in the world. That is an achievable object. But it can only be achieved if we have an expansionist policy.

Let us see how this expansionist policy is going to work in practice. My right hon. Friend the Chancellor spoke about India. If anybody tries to sell goods in India today, they will find that the bar is frequently up. We cannot get our goods into India, but before we criticise, let us look at the point of view of the Indians. They have an unemployment problem, a vast number of people who are still living on a very low standard of life, and they want to start Indian enterprises. Who is going to blame them? Certainly not I.

Therefore, our job in this country is not necessarily to turn away because we cannot sell our goods in India. Our job is to invest our money in India, because, as my right hon. Friend the Chancellor said, if we do we shall sooner or later get our goods into India, and by raising the standard of living of the people of India we shall create bigger and bigger markets for ourselves.

That being so, we must set up in this country the conditions in which we can put our money into those parts of the Colonies and those parts of the world which, for reasons that are perfectly sound and logical, cannot always accept our goods. On the other hand, there is one country about which I wish to make a slight criticism.

The Chancellor spoke of import control and said that we should pay tribute when any country takes such strict remedies as, for instance, Pakistan has had to take. But what is the position in South Africa? A company with which I am associated in South Africa has on the books an order for South Africa for £4,000 worth of ordinary commercial goods made in this country. The company cannot get an import licence, and nothing that I have been able to do has enabled them to get one. I have to base my trade prospects for this year on the assumption that imports into South Africa during 1954 will be 90 per cent. of those of last year. If I were satisfied that it was right to pay a tribute to a country, as I do to Pakistan and India, for putting up barriers, then I would pay tribute to South Africa.

I was talking to a firm in Germany the other day. The Germans are not having a great deal of difficulty in getting their goods into South Africa. The position in South Africa is that, for racial reasons, they are more friendly with Germany than with ourselves, and because they are customers of the United States oil industry, the United States are getting what I believe to be a better share than we are of the South African market. Therefore, if we are going to have Imperial Preference and a friendly relationship with the Commonwealth, let us be very careful that we give a fair deal all round I am not happy about South Africa.

Mention has been made of German competition. It is easy to complain and to make statements, but it is difficult to find an answer. As I see it, the problem of German competition is this. We taxpayers in Britain and our factories and the taxpayers in the N.A.T.O. countries and their factories are having to support troops in Germany and to make sacrifices in order to pay for armaments. Those troops and those armaments are protecting the West Germany economy, with the result that the West German taxpayer and the West Germany factory have no such burdens to bear. The Germans can say, "Let us go all over the world and sell our goods. We are not paying anything towards our own protection."

Sir R. Boothby

This is a very interesting point, but I am not sure that it is not fallacious. Does not the hon. Gentleman remember that the period between 1933 and 1938, when German trade expanded faster than ever before in history, was the time of their greatest re-armament work? The two very often go together.

Mr. Browne

I quite agree with the hon. Gentleman, but I can only see things as they are today. We do not want to job backwards to between the wars. The position has changed.

The hon. Member for Uxbridge talked about how close the world had become with the speed of travel. I still make the point that it will be a very good day for British industry when Germany can either become a member of the E.D.C. or play her fair part inthe defence of the West. In that connection, the right hon. and learned Member for Montgomery (Mr. C. Davies) spoke of the restrictions among the N.A.T.O. countries and hoped that better times would come. I can tell him, having had the pleasure of being there recently, that N.A.T.O. is a real and living thing and is going to spread through the free nations of the West. Let us have no fear for N.A.T.O. The only trouble about it is that it must put first things first, and the first thing is defence.

For my last point, I want to draw a sort of strange parallel, and I hope that hon. Members will hear me out before they comment. Japan has recently been the subject of debate in this House, and doubts have been expressed about the necessity of ourselves and the Commonwealth accepting Japanese goods. I want to draw a sort of parallel—perhaps a foolish one—between the position of Japan and the position of this country today vis-à-vis United States trade.

The position of Japan is that she is a "Western,"a part of the free world. She is denied her traditional trade in China, and therefore we have to ask ourselves—I am sure all the free nations ask themselves this—whether we are to allow Japan to trade with us or whether we are to force her to go back behind the Iron Curtain to trade?

What is our position in this country? We now have the recommendations of the Randall Report. I am sorry that the Randall Report was not couched in firmer terms instead of trying to seek a compromise where none was possible. The right hon. Gentleman the Member for Leeds, South said that Congress would not follow the Randall Report. Is he sure of this? The position which America has to face over that report is the same as we have to face over Japanese exports. We are between the Iron Curtain countries and the United States. We, like Japan, have a far greater population than can live upon our territory, so we must seek an outlet for our goods. If America puts up too big a barrier against our exports to her, where shall we look? Without doubt we shall look towards the Iron Curtain countries.

Dr. Barnett Stross (Stoke-on-Trent, Central)

May I interrupt before the hon. Gentleman leaves that point? He has offered two alternatives for Japan and has drawn an analogy between Japan and ourselves. The alternatives are, shall Japan trade with us or go behind the Iron Curtain? Will the hon. Gentleman agree that we should be doing more to see that the traditional market of Japan, namely, China, should be open to her now in order that she should get a fairer crack of the whip?

Mr. Browne

I agree entirely with the hon. Gentleman, and that was the point I was about to make. Those who control affairs in the United States must realise that we in this country have to find an outlet for our goods. I do not believe in the nonsense that we must trade with one side of the world but not with the other. This may not be a popular view, but it is realistic. Supposing we exported goods behind the Iron Curtain or Japan did the same with China, and a war began. I hope war will not occur, and with the increasing strength of atomic armaments I am sure it will not. But with modern warfare one atom bomb would blow to pieces the goods we had supplied, and in the meantime we would have had the work for our people. That is the view I take. I believe that America must open her markets to us. America must say to herself, "Shall we help Europe or drive her further to the East?"I agree with the hon. Gentleman that the time will come when we must see both sides of the picture, when we must buy and sell in both markets.

I tried to go into Russia because I felt that we should be thinking about selling certain goods there and that, before we complained about being unable to sell goods from our side of the Iron Curtain, we should consider the Russian viewpoint. I went to the Russian Embassy and said that I was prepared to go to Russia at my own expense because I wanted to see what things were like there and if there was a market for my goods. I could not get a visa. I am not tinged with violent anti-Communism, I am an ordinary, humble back-bencher. One would think that I was the sort of person they would want to visit Russia, but they would not let me in. So before we try to rely too much on trade behind the Iron Curtain, we must realise that from the way they behave they apparently do not want to open their markets. I end by congratulating the Chancellor of the Exchequer on what he has done, and I say that I am prepared to follow him right to the end of the road.

7.44 p.m.

Mr. Anthony Crosland (Gloucestershire, South)

It is a great relief to be able to follow the hon. Gentleman the Member for Govan (Mr. J. N. Browne) instead of following one or two hon. Members who spoke previously. Had I to follow the right hon. and learned Gentleman the Member for Montgomery (Mr. C. Davies), by the end of his speech I should not have regained my breath after hearing a statement of the doctrine of pure Liberalism such as I do not remember either to have read or heard since I was a student of the history of economic doctrines. Also I do not think I could have regained my breath after hearing enunciated as a serious statement of policy that those policies which were right in the 19th century must also be right in the 20th century. If that was a serious reflection of the point of view of the Liberal Party today, even the rather small increase in their percentage poll in yesterday's by-election should not be too much of an encouragement to them.

I am also grateful not to have had to follow the hon. Gentleman the Member for East Aberdeenshire (Sir R. Boothby), because the effect of his shattering self-confidence on me by the time he has sat down is to make me hopelessly nervous, doubtful and self-critical. There is also the political difficulty that one is in a position of agreeing with so much of what was said by the hon. Gentleman that it is difficult to debate with him.

There was one link between the speech of the right hon. and learned Gentleman the Member for Montgomery and the hon. Member for East Aberdeenshire, the latter of whom referred to the advisers of the Treasury who go on and on through every Chancellor, Labour or Conservative. In listening to the right hon. and learned Gentleman, I seriously thought that there was only one place in the country at the moment where those ideas would seem perfectly natural, and that was in certain sections of the Treasury. Outside the Treasury, and outside the Liberal Party, I do not think anyone at all holds them in the contemporary world. I want to find out from whoever is to reply whether or not any fundamental decision was taken at Sydney on the future of the sterling area. By that I do not mean about the future of Imperial Preference because, with respect to the hon. Gentleman who spoke before me, I share the view of one or two others who have said that under present-day conditions, as opposed to pre-war conditions, Imperial Preference is not the main thing which determines how much trade there is inside the sterling area. I believe that depends now much less on Imperial Preference and more on the import controls of the Governments concerned.

I am much more concerned with the general question of what attitude we now take to the future of the sterling area. I ventured to arguein a book a year ago that the sterling area from 1945 up to the present time has worked extremely favourably for certain of the independent Dominions, extremely unfavourably for the Colonies and rather unfavourably for the United Kingdom. This is not an original view, it is quite widely held.

Broadly speaking, the independent Dominions have been subsidised mainly by the Colonies and, to a certain extent, by this country. Clearly one could say that if things were going well in the economic field, if the outlook were genuinely set rair, as the Chancellor thinks it is, this would be a state of affairs which one could continue to envisage. It might be argued that it was worth while for the political advantages of retaining the sterling area in its present form. On the whole, I think that is a plausible argument provided that things are set fair in the economic world. However, it seems to me that things look very different if we are likely to be faced with an American recession.

Again the Chancellor was extremely optimistic about that, as are the economic advisers of President Eisenhower. I think we can all agree that there is no point in debating across the Floor of the House whether there will be a bad recession or not, because none of us knows and no one person's opinions are any better than another's. What we can say is that there is obviously a risk of a rather more serious recession than we now have and therefore we should decide what we shall do if this risk should materialise. In passing, I sincerely hope that the phrases about convertibility, which I recognise that any Commonwealth communiqué must contain, are as meaningless this year as ever. It would be a terrifying thought if, in the face of the Randall Report, and in the face of the possibility of an American recession, anyone in Her Majesty's Government, or in any of the other sterling area Governments, were seriously proposing to move in the direction of convertibility at the moment. I take it, however, that those phrases are there to satisfy the Treasury officials and not because they are strongly held by Her Majesty's Government.

Suppose that this recession comes, suppose that we have a recession roughly on the model of 1949, which a lot of people expect. I do not take the alarmist view that this will have anything like as bad an effect on the sterling area as the 1949 recession did. I think that a number of things have changed since then. In 1949, American stocks of imported materials from the sterling area were unnaturally high. At the moment they are quite low. In 1949 that recession was superimposed on a falling level of gold reserves in the rest of the world, whereas at the moment those gold reserves are rising. In 1949 the recession came at the top of a boom in raw material prices, whereas the boom burst a year ago and there has been a good deal of adjustment of prices to a different situation.

For these and other reasons, probably a recession of that sort which most people seem to expect would have a less serious effect on the sterling area than it then did. But there still will be an effect, and a serious one. My main object is to try to find out what attitude the sterling area took at the Sydney Conference.

It does not seem to me that there has been any particular divergence in speeches made on the subject as to what we ought to do if there is a more serious American recession. We are all agreed that every single sterling area country should be encouraged to discriminate against the dollar whilst keeping trade amongst themselves at the highest possible level. Some want it done by Imperial Preference, others by import control. That does not matter. The essential thing is to keep up the trade within the sterling area by discriminating, as far as we can, against dollar goods. The question is, will this happen? We know it will happen as far as the Colonies are concerned, because the wretched Colonies have virtually no control whatsoever over what they do with sterling balances, import policies, or anything else. So we know that they will discriminate in this way. My main concern is about what the independent countries, the Dominions in the sterling area will do. It is quite likely—and the Chancellor has said nothing to disagree with this—that they will be willing to discriminate against goods from America. This idea of discrimination against goods from America has sunk fairly deep, and even the present Chancellor is willing to discriminate, at any rate against manufactured dollar goods. So I have no hesitation about that point, though I am doubtful whether the South African Government will be willing even to do that.

But, to look on the bright side, let us assume that the rest of the Dominions will do it. This might protect our gold reserves and help us to keep up trade within the sterling area if we could lose gold only to America. But the trouble is that we can equally well lose gold to Western Europe through E.P.U. If the Under-Secretary of State for Commonwealth Relations would bring his cultured, academic mind to bear on such mundane matters as commodities and things of that kind, I should like him to tell us something about the relationship between the sterling area and Europe in the event of an American recession. I am very much afraid that if the recession gets worse, sterling area raw material prices will fall, Europe's imports of raw material will fall in value, and that very soon after the coming of the recession we shall have a very serious deficit with E.P.U., and that if nothing is done about it we shall lose gold to E.P.U. possibly at a more rapid rate than to the United States.

This will happen very quickly and we shall lose a lot of gold. The Chancellor of the Exchequer pointed out that if the deficit becomes larger we shall get into a tranche where we shall be paying something like 70 per cent. to 80 per cent. of our debt to Europe in gold. This can only be avoided either by the rest of the sterling area saying "We are willing to discriminate against E.P.U. as well as against America," which would be one solution, or by E.P.U. being willing to give more liberal credit terms to deficit countries than it is now willing to give. I feel very strongly that this is perhaps the most serious part of what our balance of payment crisis will be if the recession becomes serious. Either there must be discrimination by the rest of the sterling area against E.P.U. as well as against goods from North America or else we must have an assurance that Her Majesty's Government are pressing, day in and day out, on E.P.U. the need for a more liberal credit policy. It will not be the Germans or the Belgians who will press for it. They want a less liberal policy in E.P.U., so no one pretends that this is an easy job for the Chancellor. But I am convinced that one or other of these alternatives must be our policy.

If neither of these things happen, if we cannot persuade E.P.U. to give more liberal credit terms and we cannot persuade the rest of the sterling area to discriminate, except against goods from America, then by far the larger part of the American recession will fall on Britain. The major drain on gold reserves will come from Australia, New Zealand, India and so on, and we shall have a situation in which the whole burden of import discrimination and restriction will fall on Britain, and a very large part of the drain on gold reserves will come as a result of policies in the rest of the sterling area. Nothing was said about this in the Sydney communiqué and, if possible, I should like to have a statement on what view was taken in Sydney of the proper behaviour of the sterling area in the event of a recession.

Mr. Maudling

If the sterling area as a whole discriminates against the dollar area as a whole and the E.P.U. area, it will be very difficult to find an alternative source of supply of a large number of commodities. Could the hon. Member make any suggestions about that?

Mr. Crosland

Everybody agrees, including the Chancellor, that we are going to discriminate against North America, and discrimination does not mean that wehave no imports from North America but that we cut them to the minimum and try to increase them somewhere else. With regard to E.P.U., we cannot say that any large part of our vital raw materials and food supplies come to us from Western European countries. It would ease our position if they did. So this degree of discrimination will not deprive us of essential imports. But in the event of things going rapidly worse, I should like to be assured that some decision has been taken about these matters, because this is the basic question of sterling area policy.

There are one or two other questions which I should like to ask on matters which are more in the competence of the British Government acting alone. First of all, there is the question of commodity agreements and the purchase of commodities. Whatever the Chancellor says about the Randall Commission, the section of that Report dealing with commodity agreements has put paid once and for all to buffer stock agreements and the like. It means that we can now stop talking and writing about international commodity schemes. They are finished. Nevertheless, it would be still extremely useful if, within the sterling area, arrangements could be made for temporary stockpiling of certain goods during the American recession. It would be extremely reassuring to know whether there were discussions in Sydney about the possibility of stockpiling within the sterling area, mainly by the British Government.

Secondly, there are questions about commodity markets. On this subject I thought my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) was devastating. It is a curious psychological fact that so many hon. Members opposite at one and the same time insist on a return to private purchase and preach Imperial Preference. It is very hard to have them both at the same time.

My right hon. Friend was mainly concerned with the question of preference for Australian wheat. I am concerned with a different question. Supposing the recession does get worse. Supposing a drain of gold begins, and everyone gets what might be termed a "crisis atmosphere." When that happened in the past under State trading, it was comparatively easy for the Department concerned to say, in the case of the various commodities, "Right, play down on the level of imports."

What is to happen when these things are returned to private traders? Supposing these traders form the view that the crisis is so serious that sterling may be devalued and that another severe import restriction may be imposed in the course of a month or two months'time? Is it not possible that they will rush to buy, and that in effect they will be speculating against sterling by so doing? Is it not possible that there will be a rush to get in before restrictions are imposed, which will accelerate any drain on the gold reserves? The question to which we must have an answer tonight is how rapidly, if need be, can import controls be re imposed on these commodity markets? It is vital that we should know, because the Government have been dismantling those controls at the wrong moment if an American slump does come in the future.

The third question I should like to ask is what arrangements have been made—or whether any have been made—about our credit policy and lending policy generally in the event of a recession? I suppose that no one would dispute that if a serious recession occurs, and if we have—as we may have—unemployment in export industries here, the last thing we would wish to do would be to have to move unemployed labour out of those industries into something quite different. In other words, we have all got away from the old-fashioned public works attitude. No one is convinced any more that we should, for example, take married women from Lancashire and put them on to building roads in Kent. Most people now take the commonsense view that we should keep people in the same industries. We do not want to return to the situation which obtained in 1945 when so many people had been moved because of the war, out of coal and cotton that it was found exteremely hard to get them back.

This means that we must try to increase our exports over what they would otherwise be by a generous policy of lending. The most obvious scope for this is in the Colonies. This would be an ideal moment for allowing the Colonies—and we have done very well out of them, though the Dominions have done even better—to run down their sterling balances in an organised but substantial way. They would be better off, because they would have more goods. We would benefit because exports which we lost in other markets would be made good by a higher level of exports to the colonial markets. That course of action would prove to be of mutual benefit both to the Colonies and to ourselves.

I hope we shall have a much more liberal policy so far as sterling is concerned. At the moment we have made sterling much too scarce. One of the main reasons why exports are hard to sell is because, in deference to the orthodox advice from the Treasury, we have made sterling much too scarce. Some of the difficulties in overseas markets are due to the impassioned desire which exists in certain quarters that sterling should be as scarce as possible. That would not be a right policy to pursue if a recession comes. We should adopt a policy of making sterling available freely to anyone using it to buy our goods.

Mr. Maudling

The purpose of keeping sterling relatively scarce is to make and to maintain it as a strong currency, which is what this Government have done and what the party opposite failed to do.

Mr. Crosland

Of course, I realise that the purpose is to make sterling a strong currency. But in the end we could make it as strong as we like by having no imports and giving no credit at all. Then sterling would be irresistible because there would not be any of it. It is a question of where we draw the line and strike the balance between strength of currency on the one side and the level of the export trade on the other.

In conclusion, I would say that the Sydney Conference may have done some good. We all hope that it has, but it is impossible to say. I do not wish to repeat everything which has been said about the clichés in the communiqué, but we do not know what happened there. Above all, I hope it may have included some really useful and extensive discussions as to how the sterling area is to react to the problem of an American recession. To use an expression original enough to appeal even to the Chancellor, we are facing rough seas ahead, and I sincerely hope that he has his hand on the tiller.

8.5 p.m.

Major H. Legge-Bourke (Isle of Ely)

It is not often that I intervene in debates upon economic matters, but I do so this evening mainly because I feel that the speech we have had from the Chancellor and the communiqué from the Sydney Conference marks a turning point, not only in the history of this country, but also in the history of the Conservative Party.

I believe that those of us who have supported Imperial Preference, as I have, may occasionally have been thought to be attempting to create a sort of closed economy, believing that trade takes place with Commonwealth countries and between Commonwealth countries and that what happens outside that ring can go hang so far as the Commonwealth is concerned. Though some of my hon. Friends may have thought along those lines, I certainly have not. I have always felt that Imperial Preference was one means to an end and that, possibly, there were other means to the same end.

So far as I understood it, Imperial Preference served a very useful purpose between 1932 and, shall we say, 1937. In 1938 something happened. An Anglo-American trade agreement was signed, and if the war had not come when it did, a great deal of the good done at Ottawa would have been undone, because it re-established the unconditional Most-Favoured-Nation Clause in trade agreements. The moment that obtains it is quite impossible to operate Imperial Preference as it was operated from 1932 to 1937.

I believe that in the past Imperial Preference saved this country from a prolongation of the agony of the terrible slump in the 1930s. There is no question that it helped to restore us. But from 1938 the tendency was to go back and, if the war had not come when it did, we might have found that in a few years we had lost all we gained as a result of the Ottawa Conference.

In the light of this Conference, it is important to consider whether the same things which brought us into the difficulties we encountered in the early 1930s are likely to occur again. The hon. Member for Gloucestershire, South (Mr. Crosland) has spoken a good deal tonight about the possibility of a greater recession than would seem to be expected by the Chancellor. The hon. Gentleman mentioned such things as unemployment again in the export industry. I look upon slumps and wars in the same light so far as forecasting is concerned. Both of them are rather like duodenal ulcers—the more you worry about them the more chance there is that you will have one.

Dr. Stross rose—

Major Legge-Bourke

I cannot give way just now. We should not be talking about the likelihood of a slump or of unemployment.

If I may make one criticism of what has been said by the hon. Member for Gloucestershire, South, it would be that he gave me the impression, perhaps unintentionally, that he was speaking solely in terms of our total trade now instead of having his eye on further expansion. We should be talking about how to extend this trade even further and getting the annual turnover in export trade going up and up. Surely that is what our main aim ought to be.

From 1932 until 1937 we achieved that process through Imperial Preference, but it has become abundantly clear since the war, and certainly as a result of what we have heard about the Sydney Conference, that we cannot establish preferences unless there are other countries with whom to establish them. If, as well, we have the American insistence on no new preferences being maintained under the General Agreement on Tariffs and Trade, it is obvious that Imperial Preference will not be the solution to our problem of achieving expansion. I will now give way to the hon. Member.

Dr. Stross

It is the medical analogy that brings me to my feet. I thought my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) was merely saying that forethought was desirable. Forethought is certainly desirable in respect of a duodenal ulcer, if only to prevent perforation and peritonitis.

Major Legge-Bourke

I appreciate the hon. Member's medical advice and will certainly bear it in mind in future. To apply what he said to this debate, I am not suggesting that a great deal of fore-thought should not be given to the matter, but I am not at all sure that we are right, in an open debate, to put fears unnecessarily into people's minds, for that is the danger of our talking too much in the House about the possibility of a slump and unemployment. The Chancellor indicated that there is a possibility of a recession, but my impression from his speech was that he believed that it is not likely to be a very big one. Let us hope that is right, and let us concentrate our efforts on how we are to solve the problem of expanding our trade further and keeping our turnover well up. That is the main task towards which we should be directing our efforts tonight.

It appears that, for various reasons, at the present moment Imperial Preference beyond its present level is not a practical proposition from the point of view of getting what we want. What I welcomed most of all about the Chancellor's speech today was that, in the latter part of it, he showed that we are apparently proposing to do something which I regard as almost a revolution in political and economic thinking. We are going to build on the foundation of the old preferences. We are not going to take away anything. We are building a new structure—I can only place it under the heading of "reciprocity"—in a form which is not tied to tariffs as Imperial Preference was.

Reciprocity in the Commonwealth can be of many different types. The type which we appear to have chosen is that of investment in the Commonwealth, whereby we expand the business and manufacturing activity of the Commonwealth as a whole, and from that create new wealth, which is what the Commonwealth wants. I believe that to be one of the most important things that has ever been openly declared as a policy. I rank it as equally important in the history of Commonwealth affairs as the change in 1932 from the Free Trade outlook to the purely Protectionist outlook. We have opening before us a new prospect in which we shall help our Commonwealth to build up secondary industries in countries without such industries, where until now we have relied on preferences.

I am sure the Chancellor is right in saying that if we invest in the Commonwealth in this way we shall in the end increase the markets for our own manufacturers. It may take a year or two, but that has never discouraged us in the past If, in the increasing competition of the world, we are to have a hope of making our way and creating new wealth—it is only through creating new wealth that we can hope to build prosperity for our future generations—we now have an ideal way of doing it. We have a foundation on which to start, and we must build upon it. We have a great association which has been held together in the commercial field very largely by preferences. In building on that foundation, we are now doing something new which opens up visions of almost unlimited future possibilities.

There are difficulties, of course, and the biggest difficulty of all is to determine where the capital is to come from. I hope that, by the end of the debate, we shall have been told a little more about what is in the Government's mind in this respect. I hope that as much as possible will come from this country, but those of us who have listened to debates on such matters as the International Bank and various colonial projects in the past, have been forced to face the unpleasant fact that this country has not as much ready capital to plant where it would like to plant it as it used to have.

All I hope is that we shall not find ourselves bogged down in technical difficulties about getting people in this country to support, say, a finance corporation here because it is found that the money cannot be moved to the places where it is wanted. I want to see our great organisations in the City of London playing a very full part in this matter, but in so far as they are not able to meet the need adequately, we should at least call in aid some of the international support to which we may be said to be entitled as a result of all that we have done to bring about international co-operation since the war.

There is one very complicating factor in all this. The Americans have for far too long laboured under a very terrible delusion that, in getting together as a trading organisation, whether by preferences or other means, the British Commonwealth will automatically threaten the United States economy. I do not believe that is so. Certainly, between 1932 and 1937 American trade was not contracting, although ours was expanding. The United States are based on a federal organisation, and it seems to me that because of this—I do not wish to insult them in any way—they have almost a pathological terror of any form of colonialism.

As a result of that, the United States seem to assume that if the British Commonwealth gets together, it will automatically hurt the United States. I believe that to be absolute nonsense. I am sure that it is in the interests of the United States, just as much as it is in our interests, that the Commonwealth should be as thriving a trading organisation as possible. It seems to me that the idea which I see incorporated in the proposal, of launching out rather more widely than we have done before in colonial and Commonwealth development on a reciprocal basis, is the answer to many of the American doubts. Let no one suppose that having reciprocity inside the Commonwealth means that the Commonwealth is not prepared to have reciprocal arrangements with countries outside it.

We have the opportunity now of not only perhaps finding a means of bringing together those who in the past have believed in Free Trade and Protection in our own country, but also those who believe in the same overseas. If this matter is presented in a correct manner, I believe it can do a great deal to banish forever that anxiety which the United States seem to have that the British Commonwealth as a thriving organisation is threatening their trade.

There is one other factor which also occurs in the United States which I think is bedevilling a great deal of the effort, not only in the Commonwealth, but also in Europe. America is very much wedded to the idea of federalism. Since I first came into the House, I have consistently opposed all ideas of federalism—whether we were in or out of it ourselves—in Europe. I believe that one of the most restricting forms of international pressure that can be brought to bear on any economy is for a Power outside it as powerful as America is to try to put pressure on European countries in order to get them to federate. By doing that it tends to make those countries take what I can only regard as Socialist measures in order to protect their economies. It tends to bring their Governments into everything instead of letting free initiative and enterprise operate in the way they ought.

If we are to go ahead with this great Commonwealth plan that obviously is in the minds of those who conferred at Sydney, I think it important that at the same time we should not forget what is happening in Europe. The hon. Member for Gloucestershire, South referred to the risk of our getting damaged by E.P.U. America would have liked us originally, after the war, to have gone into a European federation because America believes in federation. I believe it is now being done differently. The idea is first to do it through coal and iron and steel, then perhaps defence and so on, and to finish with apolitical federal union in Europe. If that were to happen, it would undermine any chance of this great proposal which the Chancellor has put before us today ever succeeding. We cannot possibly get involved to that extent in Europe, where our political sovereignty would be lost.

The best hope the Americans have of this country playing its full part and of the Commonwealth playing their full part in extending world trade and keeping the peace of the world is for America to see that we in this country are allowed to preserve the greatest possible extent of sovereignty we can consistent with our military alliances. That is the clue to the peace of the world, always has been and always will be—that we must have the greatest measure of national sovereignty to suit our own people consistent with the military alliances necessary to our own security.

What I feel is here very important is that it should be made quite clear from the start that this Commonwealth development programme that is to be worked out mustnot be on a federal basis. It must not be done with any sense of compulsion about it whatsoever. It must be done with the free will of all the countries involved in it, and those countries must be regarded as the Dominions have been regarded ever since they became Dominions, as sovereign, autonomous States. Because we think that certain things must be done in certain regions in the world we must not think that every country in those regions must automatically federate with all the others.

I believe this federal idea is one of the greatest threats to the peace of the world of the future. It suits the Americans—of course it suits them; they have many common interests and perhaps most of all a common sense of humour. That is one of the things one must have in common or the federation is likely to give way. There are certain ethnics about this, and I believe we were given different colours and different skins for a certain purpose; I do not think we were meant to mix them and to become polygot. I have never thought that. I believe the whole hope of world peace depends upon us facing the facts as they are and not trying to alter the unalterable. That perhaps is the total mistake the world tended to make since the war. We have tended to try to change those things which are the most difficult of all to change before trying to change the things which are the easiest to change.

Here I come again to the Commonwealth development programme. What we are changing today is something which is quite easy to change,because we are building on a foundation which is already there. That is the foundation laid in 1932 by the Ottawa Agreement. It is that trade association of Commonwealth nations, each of them acting in its own right, each of them free to go out if it wants to go out and yet apparently agreed at least to leave the preferences established at that time for the time being. I believe we can make an improvement on that. We can build up to a principle of reciprocity inside and outside the Commonwealth economy which will mean a better friendship than ever we had before with the United States if only she will see the point of the whole thing and leave us all far freer to go in the way which best suits our own people.

The tragedy has been that in the past and today those in control of systems which they believe to be wonderful for their own people are apt to get into their heads the idea that those systems are marvellous for everybody else as well. We preserve the right to differ from the Communist régime. We have just as much right to differ from those who want a mass federalism and want everything done anywhere in the world through the international organs of the United Nations and so forth.

This is a chance. The outcome of this Sydney Conference gives us a chance for which this country has been looking for a long time. This is the chance of saying that if only this country is given free sovereignty and if only the countries of the Commonwealth are given free sovereignty they, going in the way which suits thembest, will be of great benefit not only to their own future generation but to the present generation in the world as a whole and to the great American people and their descendants.

I hope that what I have said will not in any way make anyone suppose that I do not believe that friendship between this country and America is one of the most important things we have to maintain. It is absolutely essential for the peace of the world that America and ourselves should remain friends, but let us talk in real terms. Do not let us imagine that neither of us dare say anything to the other for fear of hurting his feelings. Sometimes we make mistakes and sometimes they make mistakes. Anybody who is afraid of making a mistake will never get anywhere.

The Chancellor and the Finance Ministers have shown that they are prepared to run the risk of making mistakes. They know that they must do something, and that the worst they could do would be to sit still and let world events take charge of the situation. The Sydney Conference is of immense importance, no matter what Lord Beaverbrook's Press or any other Press may say about it. When first I read the communiqué I misunderstood its purpose. I thought it was a mere attempt to get back to the Free Trade of 1923, and I was sure that that was impossible. The more we know about the Conference the more it becomes clear that it was bound up with the future peace of the world and the future wealth of the Commonwealth. I believe that these objects can be achieved only if we exercise vision and have the courage of our convictions to go ahead and take a risk now and again.

8.30 p.m.

Mr. F. Blackburn (Stalybridge and Hyde)

The hon. and gallant Member for the Isle of Ely (Major Legge-Bourke) said that the meeting of the Finance Ministers was probably the most important event in the history of the Conservative Party, but he did not indicate whether he had in mind progress, consolidation or decline. He indicated that he knew what the Commonwealth Conference was about, and what decisions had been taken there.

I agree with my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) that we do not know what took place. I have been in this House all day listening to the speeches and to various hon. Members giving their ideas as to the solutions necessary to deal with problems that face us today. I want to bring the debate back to what we are supposed to be debating, the Commonwealth Economic Conference, and I want to find out what it is about. This is the third conference thatwe have had, and the information that we have been given after each conference has been so meagre that we know very little about the decisions that have been taken.

I do not want anything that I may say to detract in any way from my belief in conferences within the Commonwealth. Even if, as seems likely, this Conference achieved nothing, I still believe that it will have played an important part. I want to make that clear, because I am rather critical about what has taken place. We must admit that the Chancellor of the Exchequer has become adept at the politician's art of spinning words without saying anything. He is not only very good at the job; he is extremely good. In fact, we have to admit that he is a genius. This is the third time that he has given usa speech after a Commonwealth Economic Conference. His speech this afternoon was composed of trust and pious hopes—"I trust" that this will take place, and "I hope"that that will take place. The only thing we can say about it is that he was more emphatic in his trust and hope than on the two previous occasions.

In order to try to find out what took place at this Conference, I studied carefully the statement the Chancellor made to the House on 2nd February. I also listened carefully to what he had to say this afternoon in the hope of getting a little more information and being able to fill in the blanks I do not know what other hon. Members feel, but I am still in the same state of wondering what decisions were taken. Therefore, I want to look at the statement which the Chancellor made on Tuesday, to see whether we can find out from it what actually did happen. Perhaps the Minister who will reply will be able to fill it out a little. The Chancellor said: We met a year after we had set out together on a new course of policy."—[OFFICIAL REPORT, 2nd February, 1954; Vol. 523, c. 205.] I was wondering what that new course of policy was, so I turned up the communiqué that was issued after the 1952 Conference. This is what it said: The measures taken in accordance with the conclusions of that meeting have, however, enabled the present Conference to decide that a more positive policy can now be adopted, both by the Commonwealth countries themselves and in concert with other friendly countries, to promote the expansion of world production and trade.…The Conference agreed that Commonwealth countries would work together to achieve certain broad, common objectives. They are words which convey no precise meaning. We do not know exactly what was to take place then. The Chancellor concludes that communiqué by telling us where we start off after the new meeting. Then he said: The success of such a meeting should be judged rather by the maintenance of agreement and the effect of sharing of experience than by the test of whether new and startling decisions were reached. That refers to the latest meeting. It is quite obvious that no startling decisions were reached, and doubtful whether any new decisions, or any decisions at all, were reached. When the Chancellor says that we have to judge it by the measure of agreement, does he mean that we are to judge it so because there were no rows at the Conference—that one Member did not accuse another of being a capitalist dollar-monger?

He also said that they all …registered absolute identity of view on the line to be followed… but what was that line? We are not told either in this statement, or in the communiqué issued after the Conference, nor has the Chancellor told us this afternoon. Various hon. Members have expressed a view as to what should take place, but we have not been told definitely what it shall be.

His statement continued: The statement of the President of the U.S.A. to Congress and the Report of the Randall Commission since published, give us considerable encouragement. I wonder whether the comments of others in America also gave encouragement? We have for long had statements from America which we have welcomed and with which we have agreed, but they have never been carried into effect. I do not know whether the various Ministers are still as pleased with those other statements, and whether they really expect that effective action will be taken either on the majority Report or the President's statement.

The Chancellor went on to say: Apart from what we ourselves must do, we look for good creditor policies by the United States. We have been looking for those since 1945.

I do not want anyone to accuse me of being anti-American; I do not like an attitude of anti anything, and I am very grateful to the action that America has taken in regard to Marshall Aid and the help that she has given us since the end of the war. Nevertheless we would all have preferred to earn our way rather than to have gifts. We have been looking for American good creditor policies since the war ended, and we are getting no nearer merely because the Commonwealth Minister's meeting says it is hoped that America will adopt those policies.

Still referring to America, the Chancellor said: We welcomed the prospect of I.M.F. credits being more readily available whether to help the world to ride out the effects of an adjustment in the American economy…". What is this euphemism—"adjustment in the American economy"? Apparently we must not talk of any recession in the American economy, but just that there is "an adjustment"taking place. Let us hope that it is a very small thing. What action have the Finance Ministers taken to meet not just "an adjustment" but a recession in America? Decisions were apparently taken, but we have not been told what they were. I should like to know exactly what they were, so that I can judge whether we have acquiesced in the right decisions.

The Chancellor said that there was a unity of purpose about the line to be followed. He then said: Our second major decision was to concentrate on the immediate necessity of increasing our own strength and sense of self-reliance as the most poweful unit of our type in the world. We were not ready to sit back and await what success might attend our long-term policies. It sounds good, but what does it mean? We all agree that there should be plans for increasing our own strength. The Conference said that it was not ready to sit back and await success in our long-term policies, but we have not been told what those long-term policies were.

The Chancellor claimed that the Conference did three things. First, he said: We reaffirmed in the light of experience, since our last meeting, our determination so to conduct our internal policies that we hold inflation in check and concentrate our energies and inventiveness on increasing our overseas earnings. The Commonwealth Ministers did not need to go to Australia to make that decision. We all agree that must increase our earnings, but we are not told very much about our plans to do so. Then the Chancellor said: Second, we repeated our intention to ease"— note the next three words— as opportunity allows, restrictions on intra-sterling area trade. What does that mean? We are going to ease restrictions as opportunity allows. It may mean nothing; it may mean quite a lot. Thirdly, the Chancellor said: …we considered how best to provide the means of developing the huge latent resources of the Commonwealth and Colonial Territories. Those words have been used in previous communiqués from Commonwealth conferences, but we still have no indication that there is an effective plan to develop those resources.

My right hon. Friend the Member for Leeds, South (Mr. Gaitskell) asked the Chancellor about Australian wheat. This is what the Chancellor said: All I can say is that wheat has now been restored to purchase by private hands in this country, and I sincerely hope that we shall continue to take a portion of Australian wheat, both hard and soft wheat. He hopes; he does not know. He cannot say, "Yes, we shall take Australian wheat." He hopes that we shall be able to take some Australian wheat. Surely he understands the importance of developing alternative sources of supply? Some Members of the Government seem to be quite prepared to take dollar wheat, dollar tobacco and dollar cotton, and not to concern themselves about alternative sources of supply. If Australia has surplus wheat it is to our advantage,and that of the sterling area generally, that we should buy it before we buy one bushel of dollar wheat from America. It is not very long ago that we were complaining that Australia had to some extent over-industrialised and had neglected food production. Food production at the present time is so important to the whole world that we should encourage it everywhere throughout the Commonwealth. The Chancellor made another reference to Australian wheat when he said: The levels of purchases from Australia are bound to continue either at their present level or at a better level, and, if events occur which are undesirable from the point of view of the economy either of the United Kingdom or the Sterling Area, the right hon. Gentleman can rely, not only upon the wisdom, but also upon the actions of Her Majesty's Government to intervene. It means nothing, does it? The right hon. Gentleman does not know, but hopes purchases of wheat will remain high. He does not know whether we shall be able to keep them up, buthe hopes. He says the purchases will remain either at their present level or be higher still. After the Chancellor's speech the other day and after the communiqué we are still in some difficulty. We do not know what decisions were taken. Let me quote from the final sentence of the right hon. Gentleman on Tuesday: In regard to the anxiety of the workers of the country, the workers should feel confidence that the future outlook both in America and for world trade has now been so carefully analysed by the Finance Ministers of the Sterling Area and by Ministers of Her Majesty's Government that we may be better able, if things do go badly, to take the right action this time than we have ever been able to do before."—[Official Report, 2nd February, 1954; Vol. 523, c. 205–212.] I hope that is true, but I should feel much better satisfied myself if I had some idea of what the Commonwealth countries have decided to do. It is not enough merely to analyse the problem. We ought to be taken into their confidence, and the workers are entitled to know something about all this. It is no good telling the workers, "You need not worry. We have analysed the problem."If the Government have analysed the problem, and if the Finance Ministers have analysed the problem, then we should be told exactly what the decisions were after the analysis. I should like to know; but we are kept in the dark.

It may have been an excellent Conference. Even if no decisions of importance were taken I should still value the Conference because I think these conferences are important. I personally shall not be satisfied until we have an organisation to consider Commonwealth problems as a whole, and we ought to give other member countries some say in the running of the sterling area, too. However I think it is rather discourteous to the House that we should be given statements that convey no information, and I hope that when the hon. Gentleman replies to the debate he will give us a little more information than we have had up to the present time.

8.48 p.m.

Mr. Anthony Fell (Yarmouth)

I hope that the hon. Gentleman the Member for Stalybridge and Hyde (Mr. Blackburn) will forgive if I do not follow him in his arguments. I thank him for curbing himself so strongly that he did not take up the rest of the time. It is probably true to say that no man on either side of the House, no man or woman in the world, however great an economist he or she may be, would even pretend to know the answers to all the manifold problems that have been under discussion today. Therefore, I hope I shall be forgiven if I do not attempt to venture into those parts of the problems of which I know least.

The Chancellor of the Exchequer went to Sydney and—in this I agree with the hon. Gentleman the Member for Stalybridge and Hyde—the fact that he went to Sydney and that there was the Commonwealth Conference was in itself worth while. I believe that there is evident an obvious and genuine desire on the part of the Government to develop even further the greatest force for world peace that has ever evidenced itself in the history of the world.

Having said that I think the Chancellor did a good thing, having said that I believe he is treading most difficult paths at this stage and that I agree it may well be impossible to increase Imperial Preference at this moment, I then would like to declare an interest in that I am an Imperial flag-waving man—and I am very proud of it.

I am deeply worried about the possible result, not of the Japanese Agreement itself, but of the habits that may arise out of it. I am worried as to whether we shall be able to hold the future that we are designing for ourselves. I am worried that we may be forced into creating Imperial Preference at a time when things are not as happy as they are at the moment.

Perhaps I may be allowed to go into this on a very humble and simple line. Suppose that Japanese goods start to flood the markets. I remember them flooding the markets when I was in New Zealand, and I remember trying to sell Japanese sand shoes at about, I forget the price, but something like 3s. 6d. a dozen pairs, against English sand shoes, or whatever they are called, at about 3s. 6d. or 2s. 6d. each.

Mr. M. Follick (Loughborough)

A pair, or each?

Mr. Fell

Each pair. I remember trying to sell English socks at about 1s. or 1s. 6d. a pair, against Japanese socks at one-twelfth to one-twentieth of that price. No doubt since then the Japanese standard of living has risen, but it has not yet risen to such a height that we shall be able to compete on even reasonable terms, even with the increase that has taken place.

Therefore, if there comes a habit of letting in Japanese goods, perhaps for fear that Japan will not be able to trade anywhere and will become a living sore in the world and then gradually drive us into some sort of war, we shall let those goods in. The result will be that countries like New Zealand and Australia will certainly be able to buy cheap goods from Japan; but because they do not buy our goods instead of the Japanese goods, we shall not be able to buy the primary produce of Canterbury lamb, cheese and butter, wool and wheat from Australia, and the other goods that come from the Empire.

If that should happen, the results surely must be a diminution of Imperial trade generally. If the Empire cannot sell its primary produce, it will be forced to have another Ottawa Agreement, imposing perhaps greater preferences than would be necessary if the Empire were able to evolve its preferences gradually and at not too high a rate—at a slightly greater rate than at present—before such an emergency arises.

I hope the House will forgive me for hurrying somewhat, but there are one or two other points that I want to cover. I am, however, going to stop on the tick, and I hope that hon. Members opposite will be pleased to hear that, because I remember that on a previous occasion I went a little over my time.

I want to deal with one point that arises out of what I have been saying. It is the fear that to holddown the trade of Japan and not to assist it enough, and perhaps the trade of Germany, will lead to a slump in those countries and in the end to a world war. I do not believe this necessarily to be the case. I believe that if we go along the wrong road now and, under the system of international trading and low preferences, let in too many goods from those countries which are producing cheaply, it may be that at some time in the future we shall have to stop trading with those countries, and then perhaps they will go headlong into a slump which may lead to great difficulties.

I do not think that wars are caused in this way. I believe that the security and future peace of the world certainly must be linked with reasonably happy trading relations, but, if one looks into the past, I think it will be found that war is a result more of an attitude of mind at a stage of civilisation than of anything else. In the 16th Century, when Philip and Catherine de Medici and Elizabeth and the whole of Europe were at one another's throats fiercely throughout the century, or most of it, and in the later centuries which followed, it was not a question of trade but a question of a habit of war, a question of avarice and greed at that stage of civilisation.

I think it is true to say today that we have reached a stage in civilisation where it is not thinkable that certain nations which were at each other's throats in 1914 could be at each other's throats today. I Believe that it is perhaps true to say that the reason Russia is such agreat danger is that she is almost mediaeval. It is certainly true that we have today everything possible to protect and to assist those nations which are attempting to get their trade on to a level basis again, but it is certainly a false premise to saythat that must be done if the possible result is that one can help them for a little while and then has to let them down with a bang.

Therefore, I hope that in our future thought on Imperial trade we shall give very serious consideration to raising Imperial Preference, certainly where necessary to protect ourselves from those countries which are producing goods with which we cannot compete because of their lower standard of living.

In conclusion, with most other people, I think that the Chancellor has done everything that he can in the present circumstances to set a reasonable basis for the future. I only hope that the foundations which he is trying to lay will go towards Imperial Preference rather than away from it.

9.1 p.m.

Mr. Gordon Walker (Smethwick)

The Chancellor of the Exchequer opened his speech with a rather half-hearted defence of the woolly and unsatisfactory language of the communiqué. I am not concerned with attacking the language; I am much more concerned with the substance revealed in the communiqué, and I think the kindest thing I can say—because I always like to be as kind as possible in these debates on Commonwealth matters—is that the meeting cannot possibly have been as bad as the communiqué would lead one to think.

I am fully convinced, from personal experience, of the immense value of these Commonwealth meetings—the personal contacts, the exchange of information, the getting to know one another which take place at them. It is very difficult to indicate that sort of value of a meeting in any language at all. When I read the communiqué it reinforced an idea which I have sometimes had, that it would perhaps be better to have no communiqué at all after a Commonwealth meeting but simply to have the meeting and get on with the business. It certainly confirmed me in the view that, if there are to be communiqués, they should be short and crisp and not long, vague and woolly, as is this communiqué. A new principle in Commonwealth affairs seems to have crept in since the present Government took office: the less we have to say, the greater the length at which it should be said.

Even if I put the best construction I can upon the communiqué, following the remarks which theChancellor made this afternoon, I must say that I am extremely disappointed with the outcome of this Conference, and particularly—which it is proper for us to criticise—with the attitude of this Government as revealed by the Chancellor's speech this afternoon. I speak as one who regards the Commonwealth economy and the development of Commonwealth economic co-operation as perhaps the most vital factor in our whole policy—the most vital step we can take for our own good as a countryand for the good of the world. I agree with my hon. Friend the Member for Uxbridge (Mr. Beswick) that the future of the Commonwealth will be secure only if we can make it an economic reality as well as an emotional and constitutional reality.

No progress seems to have been made towards this end at all. Indeed, the communiqué which we have been given is only a re-hash, in slightly less satisfactory language, of the communiqué issued after the first Conference a year ago. One would not know that a year had gone by. One would not realise that in some ways the situation is more dangerous this year than it was when the Commonwealth Finance Ministers met last year.

Indeed, my first complaint is about the dangerous tone of complacency which runs through the whole of the communiqué and through the whole of the Chancellor's speech today, when, in fact, the position is rather more dangerous for us and we are having to face it, as a country, with extremely precarious reserves. Whatever one may say about the United States slump, or adjustment, or whatever it is called, it is certainly much nearer today than it was a year ago. Nobody was even talking about it a year ago. Now we are told that it has already started. Nobody knows whether it may get a great deal worse, and even if, as we hope, the United States Government took effective measures to deal with it, even if such a slump were quickly corrected, it would be a very nasty blow to us in its effect upon world trade.

But the most grave matter—and here I agree with the hon. Member for East Aberdeenshire (Sir R. Boothby), as I did with many other parts of his speech—is that, if we are to be frank about it, there is now little hope of the liberalisation of United States trade. The Chancellor, as always, rather carefully put in a proviso or two when he spoke of the Randall Report, but nevertheless he treated it as rather a comfortable and satisfactory document, whereas I find it a most disturbing document. The Randall Report proposes very little, even if it is accepted in its entirety by Congress. The "Economist"said that it would result in the addition of a few hundred million dollars a year only to the closing of the dollar gap.

What is really disturbing is that the Randall Report moderated its proposals in order to try to win the consent of Congress and of Senator Millikin. But Senator Millikin and his other colleagues have dissented and demurred from the moderate proposals which have been made. That is very grave, because the assumption that United States trade is going to be liberalised is the assumption behind both the last two communiqués. It was behind the communiqué last year, and it is also the assumption on which the Communiqué from the recent Finance Ministers' Conference rests.

In other words, the whole structure of hope which the Chancellor of the Exchequer deployed before our eyes today rests on an assumption which is dangerous. Indeed, if one faces the facts and the realities, one really would get a different picture from that painted in the communiqué. The picture shows that we are facing a difficult and possibly dangerous trend in world trade, and facing it with precarious reserves indeed. As my right hon. Friend said, although our reserves are going up—and it is gratifying to everyone that they are going up—they are still far below the figure of December, 1950, and even then they were far too small.

Since the war, we have never had reserves near a sufficient level, and the Chancellor of the Exchequer told us today that the rate of progress in the future is going to be slow. So, on his own account, it is going to be a very long time before we are in the position of having sufficient reserves to cushion ourselves against a moderate adverse movement of world trade.

It seems to be an unanswerable deduction that, for a long time ahead, we will have to look forward to the sterling area as being a discriminating economic unit in the world, and to talk about convertibility and to dislike the word "discrimination,"as the Chancellor of the Exchequer does, is dangerous nonsense today. These things have got to be faced. In the present circumstances, we cannot have free convertibility. We have got to have discrimination, not extreme discrimination, but more discrimination than would be thought was needful from the communiqué of the Finance Ministers' Conference.

In the interesting argument which we had between the hon. Member for East Aberdeenshire and the right hon. and learned Member for Montgomery (Mr. C. Davies), I was wholly on the side of the hon. Member for East Aberdeenshire. We were told by the right hon. and learned Gentleman that a new Robert Peel has descended upon the Treasury Bench. He told us that when the last one was here the ports were open, trade boomed, everything flowed in, and all was prosperity. Of course, that was in totally different conditions.

If today as a nation we did the same thing, we should advance straight into a position where our reserves would be running out before we knew where we were. We should probably get unemployment, which would be just the opposite to what happened under the first Robert Peel. The right hon. Gentleman the Chancellor of the Exchequer in his absence was described as a second Robert Peel by the right hon. and learned Gentleman the Member for Montgomery. I do not think the Chancellor of the Exchequer was in the Chamber at the time.

Mr. R. A. Butler

I was.

Mr. Gordon Walker

The right hon. Gentleman was. He will agree with me that, if we opened our ports today in that way, we should not be able to afford the actual imports to keep our factories going. It is a sheer necessity deliberately to develop Commonwealth trade. We ought not to adopt the attitude that if trade in all directions is developed, Commonwealth trade will also develop as a sort of a by-product. It is a sheer necessity for this country to develop Commonwealth economy, so that in the long run there will be dollar-savers and earners on a greater scale than ever before, and in the short run we will be able to deal with an American slump.

If we are going to develop trade not merely as a word, but, as the Chancellor of the Exchequer says, as a real thing, we have got to have a constructive policy. There has been no sign of it in the Communiqué and none in the Chancellor's speech this afternoon. This is nothing but pious talk, and it cannot be anything else, because the Government are throwing away the means by which we can discriminate in order to develop Commonwealth trade. And they are throwing it away for reasons of faith, for reasons of doctrinal belief in private enterprise. The hon. Member for East Aberdeershire is quite right, this is the Liberal Party we are facing now, the party that believes in laissez faire as a doctrine of faith.

The development of Commonwealth trade can only be a reality, not just a word, if there is a plan and if there is Government action. But the Conservatives and the right hon. and learned Gentleman the Member for Montgomery do not like Government action in economics, they do not like plans, and therefore they cannot have the development of Commonwealth trade. Because one cannot direct trade in certain directions in which it would not necessarily flow unless there is Government action to do that.

Mr. Butler

Nonsense.

Mr. Gordon Walker

I will try to establish my point. The right hon. Gentleman naturally regards it as nonsense because it conflicts with his faith℄

Mr. Butler

It is not a question of faith. And why does the right hon. Gentleman say that Commonwealth trade is diminishing? Can he prove it? If he can, his argument stands.

Mr. Gordon Walker

I have not said that, I have said that it has to be increased. What I said was that in the rather dangerous state of world trade ahead of us we must have discrimination within the sterling area and that we are throwing it away. I will give some examples to prove what I am saying.

Now let me get down to the details. If we are really to have a deliberately developed Commonwealth trade—not just hope that it will come as part of a general increase in world trade—we have to do two things. First there must be a flow of directed capital from the United Kingdom into the right kinds of production in the Commonwealth. Of course we are in a stronger position to do that today, though I was sorry that the Chancellor made certain claims for the Government—which was a little cheap of him—when he mentioned aircraft production and oil refineries. Those were started and developed under the Labour Government and were due to our intense capital development policy.

Nevertheless we can agree that we are in a stronger position, but the Chancellor still has not resolved two contradictory statements which he made. The right hon. Gentleman said when he was in Australia that we are to make a great contribution from this country in terms of investment in the Commonwealth and also that it would make no difference to this country or involve any hardship—the right hon. Gentleman said he did not mean rationing—but he has not told us where that greater contribution is coming from.

Is it coming from investments that we would otherwise make in this country or somewhere else in the world, out of consumption, or out of a switch from investments that we are sending somewhere now and will send to the Commonwealth in future? And wherever it is coming from, how will the Government, now that they have no effective control over investment, secure that the investment shall be made in the Commonwealth, even if they have a plan about where it is to be found?

There is another point I want to make to the right hon. Gentleman. Is he really satisfied that we have enough steel in this country, because without enough steel this investment will not be a real thing. A few days ago I was in Aden and went down to look at the refinery. A magnificent job is being done there in the speed at which the refinery is being built, but in order to achieve that speed we have had to use a great deal of United States equipment instead of United Kingdom equipment for power stations and storage tanks. These are things we can make here but which, if made here, would have involved a delay of perhaps a year in getting the Aden refinery working. I agree that today we cannot afford such a delay.

What is disturbing is that this was due to the shortage of steel here, and without the development of steel on a sufficient scale it is idle to talk about investment. Now we have de-nationalised the steel industry, I do not see how the Government can do anything to develop a production of steel greater than it will be for ordinary reasons of private profit, which is the level it is at now.

The first thing, as I said and the Chancellor agreed, was the directing of British capital investment to the Commonwealth. The second must be the making of long-term agreements with Commonwealth countries for their commodities, particularly dollar-saving commodities. But under present Government policy, I cannot for the life of me see how these long-term agreements can survive. It seems to me that they must go, one by one. I do not see how they can fit into the present Conservative pattern of trade, with all these commodities being in private hands.

I can see how the Commonwealth sugar arrangement can go on, because we have very nearly a monopoly-selling organisation under private enterprise in this country, but I cannot see what other commodities can be the subject of long-term agreements with the Commonwealth. Wheat has been mentioned as an example. Putting it into private hands means that the Chancellor has no means of purchasing Australian wheat even if he wants to. He says that he hopes that there will be purchases, but he has no means of encouraging them. If it will bring more private profit to buy dollar wheat, the private traders will buy it—and with the Chancellor's blessing, because he told us that he took great pride in the fact that we are buying food in the cheapest market, regardless of anything. The expression "cheapest market" is meaningless unless one means it is the cheapest market and one pays attention to nothing but price.

Mr. R. A. Butler

How does the right hon. Gentleman reconcile the first argument, in which he says that I have restored trade to private hands and cannot control it, with his second argument that I insist on everything being bought in the cheapest market, when it is in private hands?

Mr. Gordon Walker

The right hon. Gentleman said that food would be bought in the cheapest market, so if wheat were bought privately in the dollar market because it was cheaper, that would be done with the Chancellor's blessing. I do not think that hon. Members opposite have fully understood that if one abandons guaranteed markets for home farmers, as the present Government are doing, in order to put trade in these commodities in private hands, that must involve putting all Commonwealth trade in all these commodities in private hands, and with all these commodities in private hands there is no way of securing these agreements. With the exception of the hon. Member for East Aberdeenshire, I do not think that hon. Members opposite appreciate that if we sacrifice the home farmers in this way we are also sacrificing Commonwealth farmers. Hon. Members opposite cheer the Minister of Food when he says that he is winding up his own office, but they do not realise that in doing so the Minister is also winding up any hope of any planned, developed Commonwealth trade.

I do not see how long-term agreements can be entered into in connection with these private trade commodities. If those agreements cannot be entered into, then all that is left to us as a means of developing Commonwealth trade is Imperial Preference. That is the sole means by which one can discriminate or direct trade in ways in which it would not flow by ordinary nature. Imperial Preference, and perhaps the Commonwealth Sugar Agreement, are the only things left.

Conservative policy has had rather a jolt as a result of the party's two years in office. The Conservative panacea was to increase Imperial Preference and backbencher pressure a year ago was so strong that the Chancellor had to go so far as to bring this proposal of Imperial Preference before the Commonwealth Conference, although he knew that there was no hope of its being accepted. The hon. Member for Bury and Radcliffe (Sir W. Fletcher) produced the extraordinary idea that the Chancellor was extremely bold and had brought Imperial Preference up-to-date. All that the Chancellor has done has been to tell us what everybody knows, except apparently the hon. Member for Bury and Radcliffe, that the Commonwealth will agree to maintaining Imperial Preference at the present level but there is no hope of increasing it. That has been known for years now.

In fact, there is an objection in certain parts of the Commonwealth to any hope of increasing it, which in reality means that we shall decrease Imperial Preference, because some Imperial Preferences are specific in terms of money and some are ad valorem. But most are specific in terms of money and become less and less valuable the higher prices go. So that Imperial Preference is not even standing still. It is going back as prices go up.

None the less, the Chancellor, having told us all this—having told some of the facts of life to his own supporters—says that the Government policy is Imperial Preference, presumably to an increasing degree. That would seem to me to be typical of the really extraordinary new idea which the Chancellor has and the new meaning which he attaches to the word "policy." It now seems to mean vague aspiration—something one would like—and bears no reference to anything one is taking steps to secure.

All through his speech the Chancellor said that his policy was for this and for that, but he did not tell us what steps he proposed to take to secure it, or even if he proposes to take any steps at all. He has said, "This is my policy,"but he finds himself in a position in which it is impossible to carry out that policy. He seems to have bamboozled some people, including the hon. and gallant Member for the Isle of Ely (Major Legge-Bourke) who appeared to be happy about the Chancellor's wonderful revolutionary policy which he described to us—incidentally without giving any details. Indeed, that was the reason for this new talk of policy, meaning aspiration and not something you are going to do.

The end of this is, for all their talk about being an Imperial Party or of wanting Empire trade and all the rest of it, that what we find the Government are doing is dismantling the main instruments for discrimination, which are mainly long-term agreements, and bulk purchase. All they are left with is Imperial Preference, which cannot be increased or adapted and which in fact, is declining in real value.

Mr. A. C. M. Spearman (Scarborough and Whitby)

Is the right hon. Gentleman urging that we should do more trade with the Commonwealth—which is what we all want—or is he urging that we should do less trade with the United States? If we carry out discrimination does he not think it might have a very bad effect on our exports, not only to the United States, but to everywhere else?

Mr. Gordon Walker

It may be difficult, and trade with the United States may well fall off in selling of goods, but it is already falling off, as the Chancellor said. I want more trade with the Commonwealth, with long-term agreements to secure it and with guaranteed markets for the farmers, because the two go together. We must have both or neither.

It is a wretched position in which the Party of Empire find themselves. Had there been a Labour Government we should have had a far more vigorous, full blooded and effective policy—not just talk—for developing Commonwealth trade. We should not have broken up these long-term agreements, like the Wheat Agreement. If the Chancellor can explain the technique by which we can have long-term agreements in those commodities which are under private enterprise, such as wheat and meat, I hope he will do so, and then I will withdraw all I have said on the subject.

One final point I wish to make, which I think is in some ways the greatest economic problem which faces the Commonwealth. If we are to have discrimination in favour of sterling goods within the Commonwealth—in fact we have got it and it will increase—the great problem is that when we are discriminating against dollar goods we shall have to discriminate against Canada, because Canada is a dollar country. That is a very awkward and difficult problem. There is a danger that we may create a great economic gulf across the Commonwealth which might become extremely serious.

It would seem to me that the best way to deal with it would be for Canada to allow us to buy a certain amount of goods for sterling. That would allow us to buy what Canada is eager to sell to us and what we are anxious to buy. It would also give Canada a great incentive to allow our exports to come to her and to use up the accumulated sterling. But that depends upon the Canadians and is nothing to do with us. We can only suggest it.

But there is one thing that we can do and have not done, which seems to me to be important. We can try to lessen and to bridge over the economic gulf which can very easily be dug across the Commonwealth. We can do that by a policy of a deliberate official preference for the Canadian dollar; that is, not by talking about "the dollar" as such, but by talking about "the Canadian dollar."

The Government ought to conduct the sort of campaign which originally made us conscious of the dollar. Previously we were not conscious of it. We want such a campaign to make us conscious of the Canadian dollar and not merely the United States dollar. The managers and workers in our export industries should begin to be told that it is better to earn a Canadian dollar than a United States dollar.

Several advantages would flow from this. One advantage is that it would give us a more secure market, for the Canadian market is undoubtedly more secure for our exporters than the United States market. A very grave aspect of the matter is that the Randall Commission made no proposals for altering the "peril point" provision by which an industry in America which is threatened by tariffs can be given protection. Thus, the sword of Damocles is still hanging over the heads of our exporters who seek to establish markets in the United States, but that is not the case in Canada.

Secondly, if we were conscious of the Canadian dollar rather than the American dollar, it would help to bind the Commonwealth together. It would bind us to Canada because there would be a tendency to develop Canadian-United Kingdom trade. I know that in strict economic terms the Canadian dollar is interchangeable with the American dollar, but if we are earning Canadian dollars in the main, that is bound in practice to lead to a development of United Kingdom-Canadian trade.

I hope the hon. and learned Gentleman who is to reply will remove any doubts about the main point, that one cannot have a policy, as distinct from a talk, about developing Commonwealth economy unless one can have long-term commodity agreements with the Commonwealth, and overcome the technical problems of fitting them into a system in which wheat and other commodities have been completely handed over to private trade.

I have supreme confidence in the Commonwealth, in its economic strength, in its resources and in its desire and capacity to co-operate. My only doubt arises from the fact that I have very little faith and confidence in the capacity of the Government with its present doctrinaire ideas—there is no doubt that the Government have laissez-faire, doctrinaire liberal ideas—to get beyond the kind of clichés that we have been given in the Sydney communiqué and the Chancellor's speech, and get down to the real urgent job of making a reality of Commonwealth co-operation. I hope the hon. and learned Gentleman will give us just one example of a concrete policy so that we can hear one during today's debate, for we have not done so yet.

9.28 p.m.

The Under-Secretary of State for Commonwealth Relations (Mr. John Foster)

In this debate many far-reaching questions have been asked of me, such as "Is there going to be a further American slump?" and "What is the prospect for United States dollars?" I was not surprised. I looked at my diary this morning and, due to the vagaries of the English language, read, "9.30 wind up." However, I recalled that it meant "wind up." How HANSARD is going to report that without the assistance of my hon. Friend the Member for Bath (Mr. Pitman), I do not know. If HANSARD could report it, the joke would not exist.

Mr. Beswick

Did the hon. and learned Gentleman see that, according to the tape last night, John Foster Dulles was going to wind up the debate tonight?

Mr. Foster

Towards the end of his speech, the right hon. Gentleman the Member for Smethwick (Mr. Gordon Walker) alluded to clichés. I want to put in a defence for clichés. They are necessary in economic matters, because the cosy little things that our nannies told us are awfully dull, such as "Brush your teeth before you go to bed at night," "Everybody yawns," and "Honesty is the best policy." The last cliché is awfully dull. If one says, "Dishonesty is the best policy," that is revolutionary, and it is news.

Mr. Gordon Walker

Not on your side of the House.

Mr. Foster

If one says, "Do not steal," that is dull, but if one says, Grab everything," as the Socialists do, that is a revolutionary policy. In economic matters the clichés are the accumulated wisdom of a great many centuries. "Do not spend more than you have got," "Work hard and save"sound awfully dull to hon. Members opposite. So dull do they sound that probably the House will recollect that the right hon. Member for Ebbw Vale (Mr. Bevan) instead of saying, "Expand exports" said "Exports are a will o' the wisp.

Mr. Gordon Walker

Another cliché?

Mr. Foster

No. I am saying the opposite of what the right hon. Member said in his anxiety to escape a cliché. Instead of saying "Extend exports," "Export to live" he said that exports were the will o'the wisp which the capitalists were compelled to pursue because they underpaid their workers at home. That sounds very revolutionary but it is not true and it is nonsense. Some things which are not true are not nonsense, but that covers both categories. The right hon. Member for Wakefield (Mr. Arthur Greenwood) said that pounds, shillings and pence were "meaningless symbols."That is not a cliché but it was no credit to him to say that.

Mr. Beswick

This has nothing to do with the Conference.

Mr. Foster

It has something to do with the Sydney Conference, because the Conference stated a number of truisms and economic facts of life which are very necessary to be said and for politicians to learn, especially hon. Members opposite, because they fail to appreciate them. They are wedded to a restrictionist economy, and the debate today has been roughly on the difference between those who believe in restrictionism and those who believe in an expanding economy. The right hon. Member for Leeds. South (Mr. Gaitskell) was concerned throughout his speech in saying that the Government had given up this physical control or given up the right to do that We meet (him square on and say that we believe that, by giving up these controls and by using other methods of monetary policy and so on. we create an atmosphere in which the individual effort of each person produces what the late Sir Stafford Cripps was so fond of alluding to, a bigger cake. He always had the same-sized cake, but I wanted to use his cake for the moment—

Mr. Gaitskell

Leaving clichés and cakes alone for a moment, will the hon. and learned Gentleman explain what he means by "monetary policy" here? How will it help to increase Common-wealth trade?

Mr. Foster

Monetary policy was given as an instance of the kind of world in which we believe individual effort can create bigger production and more worth-while trade. The right hon. Member rather made fun of the Chancellor by saying that he wanted to increase East-West trade. Well, he does, but he wants to increase Commonwealth trade. At one time it was put against him that he wanted to increase Commonwealth trade as if that were a rather foolish thing to want, but the right hon. Member for Leeds, South also criticised him for not having increased that trade. The facts are that Commonwealth trade has increased and is increasing.

In that connection the right hon. Member was inclined to be extra-pessimistic in the sense that, to a certain extent, I think he misrepresented the situation about sterling balances. One of his statements was that sterling balances were relatively in the same proportion as when the reserves were higher. Now the reserves are admittedly lower than at the highest point in 1951 and their relative position to sterling balances is about the same; therefore, the right hon. Gentleman said, the danger is the same. I do not believe that is so. I do not think that the House would agree with the right hon. Gentleman. Sterling balances have a bottom portion needed for currency reserves and for working balances, and it is clear that the absolute size makes a difference. If we had a very big amount of sterling balances, there is a possibility that the top part would be used if there were a serious crisis, and might be used as a drain upon the reserves.

In fact, the success of the Conference of January, 1952, in which all the Commonwealth pulled together and came to an agreement to do their utmost to redress the catastrophe which hung over the Commonwealth area because of the policies of right hon. Gentlemen opposite, was because the Commonwealth countries did not misuse their balances in that sense. I am only discussing the theoretical point that because balances have the same relation to the reserves there is the same theoretical danger now as there was then. I should have thought it was obvious that, as there is a certain basic minimum for the balances which must be used as currency reserves and working balances, their absolute size matters, and that there is not the same danger, although the relationship is essentially the same.

Mr. Gaitskell

The hon. and learned Member is developing a very ingenious and interesting argument. I wonder whether he has followed it out to its conclusion. If what he is saying is correct and we want low absolute sterling balances, the proportion being unchanged, and the proportion has no effect, why is the Chancellor being so proud about the increase in the gold reserves? The hon. and learned Gentleman's argument means that we ought to have less gold and less sterling balances. Is that the hon. and learned Gentleman's view?

Mr. Foster

Of course it is not. I know that the right hon. Gentleman is an ex-don. In fact, the whole debate has been carried on by a number of dons on each side. I thought that right hon. Gentlemen on the other side were rather doctrinaire dons and they reminded me very much of a philosophical colleague of mine who wrote a book on "Eternity." He turned to a historical colleague and said, "I have not given you a copy because it does not deal with your period."

All I was saying about sterling balances was that the absolute size mattered. Take for the sake of argument a situation in which the balances were at an absolute minimum as required for currency reserves, there would then be no danger. That does not mean that we do not want the reserves to increase, for the reasons which the right hon. Gentleman has given. We want the reserves to increase because of their value as reserves, and the bigger they are the more use they are.

Mr. Gaitskell

I am awfully sorry, but this argument is very confusing. The hon. Gentleman has said that he does want the reserves to increase, and he has also admitted that an increase in the reserves carries with it an increase in the sterling balances unless they change their proportion, and he has admitted that they will not do so. That being so, on the one hand he wants more gold, and on the other hand he does not want what goes with it, an increase in the balances. He had better leave this subject alone.

Mr. Foster

I will have one more shot and try to get my pupils to understand what I mean. I say that it is a fallacy on the right hon. Gentleman's part to say that if the proportion is the same the danger is the same. That is all I am saying—if the reserves and the balances are lower, as a fact, then the danger is less.

Let us examine the argument of the two right hon. Gentlemen about the sterling balances.

Dr. Stross

Before the hon. Gentleman goes to that point, he did, at the beginning, discuss clichés. May I put it this way, that when the pupil commits murder we should hang the schoolmaster?

Mr. Foster

The arguments about the sterling balances were raised in a way which, had they been believed in the country—and I hope they will not be—might have had some harmful effect and the same thing was argued by the hon. Gentleman who alluded to the size of the colonial balances. Those balances are of a certain size, but there have been many qualifications about them. First of all, large working balances are needed by the Governments, and secondly, there are considerable sums in those balances for such buffer pools as the cocoa pool. The remaining balances are meant to be used in the sense to which I think the hon. Member for Gloucestershire, South (Mr. Crosland) was alluding, namely, reserves; but it is not right to say that the absolute size of the sterling balances in this case is a danger, at this time when our reserves are increasing.

Mr. Gaitskell

They are increasing exactly pari passu.

Mr. Foster

The balances do not necessarily increase by the same amount as the reserves, and that is the misunderstanding between us. I would say to the two right hon. Gentlemen that their view of a restrictionist economy is one which we do not accept at all. We do not accept that the Government should direct investment in the Commonwealth by, we will say, instituting a system of exchange control between the United Kingdom and the Commonwealth countries. That seemed to be envisaged in what the right hon. Gentleman the Member for Leeds, South said in the debate on the previous Conference a year ago. There he said that it had always occurred to him that there was too free a movement of capital between the United Kingdom and the Commonwealth countries; that, therefore, he was in favour of this capital being restricted, and the most likely way out, assuming that, was a system of exchange control on capital movements. If he was right, it is a very strange thing that when his party were in office they did not take measures to stop this capital movement, if it was such a great danger and such an inefficient system.

The right hon. Member will probably remember, too, that in, I think it was," "Challenge to Britain,"figures were given about the movement of capital from the United Kingdom from 1947 to 1950. The argument was there again developed that very little real investment capital had moved from the United Kingdom to the Commonwealth, because a lot of what did move was "hot" money. If the right hon. Gentleman is right, the actual surplus which could have been invested as capital movement into other parts of the Commonwealth during the Labour Party's tenure of office—and let us not take the first two years because of the effects of the war—in 1947 was something like minus £443 million; in 1948, minus £1 million; then in 1949 it was plus £31 million, and there was a big surplus of £289 million in 1950, but this was obtained at the cost of running down stocks. After that it again went into minus figures. If the right hon. Gentleman is right in his view about capital movement—which was one of the few free things allowed under his régime—namely, that in the sterling area there should be no exchange control, one cannot help asking why he did not introduce this very strict physical control, which in our view would have been disastrous.

If he is right about the Socialist Government's system of controls—which he says we are throwing away; and we agree that we are—let us look at the mess he got into in 1951. He probably remembers the speeches be made at the Mansion House, in Washington, and to the Trades Union Council. In those speeches he drew a most terrifying picture of the abyss into which we were falling at a very fast rate. That could not be said to have been caused by external forces. [Hon. Members: "Oh."] It could not. It could be said to have been due to the fact that the United Kingdom had an inefficient and doctrinaire system, which was not working.

The moment we came into office we began to introduce a more flexible system which, during the year 1952–53, resulted in a very big change—from a loss of £1,000 million to a surplus of £400 million. The right hon. Gentleman said that the surplus of £400 million was not as great as it seemed, because American aid had been taken into account, and that if it had been left out the surplus would have been much less. But I understand that the figure of £1,000 million was also arrived at after including American aid.

Mr. Gaitskell indicated dissent.

Mr. Foster

Is the right hon. Gentleman saying that there was no American aid in 1951–52?

Mr. Gaitskell

Marshall Aid was virtually suspended at the beginning of 1951.

Mr. Foster

We shall have to agree to disagree about that. Again and again in their arguments the two right hon. Gentlemen assumed that unless the Government have the power of directing this or ordering that, no steps can be taken to deal with any crisis which eventuates. They then went on to play what to anybody who plays chess is called a Kriegspiel—by trying to make a move and, if it is an impossible move, retreating—by trying to find out what happened at Sydney.

The hon. Member for Stalybridge and Hyde (Mr. Blackburn) objected to the terms of the communiqué, because he said that they meant nothing. If we read them we find that they mean exactly what the Chancellor said they meant, namely, that agreement was reached. The hon. Member was trying to go behind the terms of an agreed document. The communiqué was a result of the agreement of the seven or eight independent countries of the Commonwealth. If they had wanted to say more, they would have agreed to say more.

Mr. Gaitskell

We do not ask for any more.

Mr. Foster

The hon. Gentleman the Member for Gloucestershire, South was asking a lot of questions about what was behind the communiqué and what any particular country agreed or disagreed at the time. The right hon. Gentleman made a lot of play with some rather lighthearted comments by the Press, who also played the same game as the right hon. Gentleman agreed he did, of guessing the Government's policy, he said, and then finding out whether it was denied or agreed. Right hon. Gentlemen opposite keep on saying they are guessing. To them there is no policy unless there is a restrictionist economy. That is the only kind they want. Unless the Government are prepared to direct investment into the Commonwealth—

Mr. Gordon Walker

All we say is that there cannot be a policy unless something is done.

Mr. Foster

Taken over the last two years, the Government will be seen to have taken a lot of action, and to have been very successful in their actions. That is the awkward part of the right hon. Gentleman's case. The party opposite keep on saying it is not a policy unless the Government have the right to direct investment into the Commonwealth, unless they have the right to put on exchange control between the United Kingdom and the rest of the Commonwealth. To them it is not policy unless these particular powers exist. If the Government, as we have done, create a climate in which the economic forces have freer play, then that is not policy to them, because it is not in accordance with "Challenge to Britain" or with their preconceived doctrinaire ideas.

Mr. Beswick

The Government have not a policy for the surplus wheat either.

Mr. Foster

There is an instance in point. To them, unless the Chancellor has the power to buy up the whole of the Australian wheat surplus, he has not got a policy. That is their argument. First of all, private trade has bought a good deal of it. If the price were right, they would buy more. This is the conflict between the two sides of the House. We believe in—

Mr. Gordon Walker

The cheapest market.

Mr. Foster

Has the right hon. Gentleman heard his supporters behind him complaining about the price of food? Is he in favour of increasing the price of food by paying more than necessary for it, or not?

Mr. Gordon Walker

I am certainly in favour of this country's making some sacrifice to develop Commonwealth production, such as Australian wheat. The Government are not. The Government are prepared to go to the cheapest market and ignore the Australian: wheat surplus.

Mr. Foster

No. First of all, a good deal has been bought. Both sides of the House agree that sacrifices must be made, but we believe that in making sacrifices we should obtain the best results; in other words, we believe in creating a climate in which it will be possible to increase our savings, to have a trade surplus with the rest of the sterling area that can be used for development. We believe that if purely restrictive powers are taken, if the object always is, as the right hon. Gentleman said, to swing from one place to another, that will not work or be of advantage to us or to anyone else.

I am not asking right hon. Gentlemen opposite to be convinced by what I am saying, but to recognise that there is this difference between us, and not to assume in their speeches that if we differ from them we have not got a policy. That is not the answer. We have a different policy, and it would be, I think, less disingenuous on their part if they said, "This is our policy. With your policy we do not agree—for the following reasons."

There is always the assumption in the speeches of hon. and right hon. Members opposite that because we differ from them—because we do not have these physical controls and this restrictionist policy—we have no policy at all. I should have thought the record of the last two years would have shown that we have a policy, one with which hon. Members opposite profoundly disagree, I appreciate, but none the less a policy that has worked and that has increased our balance of payments position from minus £1,000 million to reserves of £400 million. It has also resulted in holding the cost of living steady over a considerable period and has kept up full employment. These are the results and, therefore, right hon. Gentlemen opposite have to fall back on gloomy prophecies.

That is only a question of degree, because it is obvious that in our economic state since the end of the war there have always been dangers ahead, and we must not be over-optimistic. What we must be is resolute and looking forward. As my right hon. Friend the Chancellor of the Exchequer has said, we must be audacious and constructive. What we object to about the policies of hon. Members opposite is that what they are always aiming at is merely preserving the status quo. They have paid lip-service in this debate to increasing Commonwealth trade; but none of the remedies or criticisms which they advance would result in increasing Commonwealth trade.

In that connection, the right hon. Gentleman was putting to me the dilemma of how the long-term contracts were to be reconciled with abandoning such controls as the Government have. Theoretically, there are many ways by which they could be reconciled, but it would be unwise for me to speculate on that. I can say, however, that representatives from Australia and New Zealand are over here and are discussing that very problem. Their discussions will cover the very ground of the problem which the right hon. Gentleman put to me. It is obviously a problem, and a difficult one, but I do not accept that it is insoluble.

The advantage of our flexible and running economy is that we allow each person a better opportunity by his own individual effort to contribute to the total good. The Socialist Party believe in Socialism, by which everything is restricted and every person has certain very defined powers and duties in the economic sphere. In an ideal society, where everybody was a saint, there would be more of an argument for that, but given the imponderables and difficulties of economic life, we see that Socialism has failed in England. We have had six years of it, and it was a disaster and ended in a near-disaster. The right hon. Gentleman has to take refuge in saying that it was external circumstances which brought him to the paths which he outlined in his three speeches.

There is one point which does not fit into my argument but with which I wanted to deal. The right hon. Member for Middlesbrough, East (Mr. Marquand) asked whether the Indian five-year plan was progressing well or had run into difficulties because the Indians were not drawing down their sterling balances. Our information is that the Indian five-year plan is progressing well.

I commend to the House the results of the Sydney Conference, in which the Commonwealth countries agreed on the principles which they followed. It is true they were reinforcing what they had decided before, but the results in each country were satisfactory; they had had a successful two years dating from January, 1952. Therefore, the criticisms which have been advanced of the communiqué and of my right hon. Friend's actions are quite unjustified.